While there are many perks to running a small business – being your own boss, pursuing your passion, a better work-life balance, and so on – there’s also a lot to consider too.

Keeping a watchful eye on your small business finance is one of them. Not only will good financial management assist in the running of your organisation, but it will also ensure that tax season is navigated smoothly and that any unforeseen expenses can be covered.

This may seem like a full-time job in itself, but by bolstering these 5 tips, small business financial management is easier than you think.

1. Consider Automation

While we believe that having human-run services is vital for a healthy economy, small businesses can save money by implementing automation software in areas that would otherwise be run by yourself or your staff.

For example, as an SME, business expense software could be monumental for tracking your budget, managing staff expenses, staying on top of staff requests, and more. While there is a lot of software on the market to choose from, do your homework by signing up for free trials/short-term subscriptions, and seeking recommendations from your industry peers.

2. Keep on Top of Daily Money Management

This may seem tedious and time-consuming, but in the long run, you (and your business’s financial health) will benefit from it. This includes:

• Being clear about your business plan, long-term goals, and your budget.
• Regularly reviewing costs to ensure they are in keeping with your budget.
• Keeping clear and accurate records of income and outgoings. Make sure every transaction is correctly accounted for and all receipts and invoices are stored.

3. Keep Business & Personal Accounts Separate

This is essential for good financial health in both your professional and personal life and will make it easier to keep on top of your expenditure. 

Naturally, this means having separate bank accounts and not mixing funds from those accounts. Not only will this mean tracking finances is easier but it will also save you a whopper of a headache when tax season comes around.

Also, be sure to pay yourself first by setting aside 10% of your revenue (for example) to ensure personal needs are met. This will also help you assess your company’s long-term profitability, and help manage your small business finance.

4. Ensure Good Cash-Flow Health

This may seem like a no-brainer but keeping your cash-flow in a positive state requires regular action. Some of the best ways to do this include:

• Creating a cash-flow forecast. This is essential for predicting how far your budget will go and helps you create a contingency plan for any unexpected expenses. You can create a weekly, monthly, quarterly, or annual cash-flow forecast – whatever works best for you. And remember, if you need help or guidance creating your forecasts, seek advice.
• Ensure client invoices are paid on time. This could mean putting a contract in place that specifies when invoices should be paid, and the ramifications of late payments (such as a late payment fee, for example). Be sure to include this information on all invoices too.
• Negotiate with suppliers. This is the best way to ensure the fairest trade deals, wholesale prices, and guaranteeing any discounts or deals that your company may benefit from.
• For product-based companies, keep on top of inventory checks to monitor which products are selling well and which aren’t, and optimise and reduce as necessary.

5. Stabilise Potential Larger Business Challenges

Finally, it is important to put foundations in place to cope with any larger business challenges that may arise in the future, especially during periods of economic difficulty. These foundations can include:

• Staying on top of your tax bill by setting funds aside every month into a separate account. Seeking accountancy services can also be extremely valuable.
• Not forcing business growth by investing too much money without being sure of a return on investment. Be realistic with goals and your budget.
• Work with reputable marketing agencies or freelancers to put together an airtight strategy. This will ensure your marketing budget is spent accordingly and with the most profitable return on your campaigns. 
• Build your capital – this is essential for SMEs, especially during the challenging early stages of the startup period. Start by keeping aside a minimum of 3 months’ worth of business expenses – on top of the predicted expenses you will pay. Consider it as an emergency fund.
• Build a good credit score by paying bills and repayments on time – and don’t apply for a business loan too late in the startup game by relying on it to pull your company out of a tough financial time. You’re less likely to be granted finance.

Final Thoughts

There is a lot to consider when launching a startup, and your company’s finances should always be at the forefront of your mind.

We understand that this may be challenging and time-consuming for busy business owners, which is why we offer a host of different financial services (including bookkeeping, accounting, VAT, payroll management, and more) to help small and medium enterprises thrive. 

For more information, get in touch today.

Disclaimer: The information presented in this blog post is accurate to the best of our knowledge and based on the latest available information as of the date of posting, which is 21st December 2023. However, please note that information, laws, regulations, and circumstances can change over time. Therefore, we cannot guarantee the accuracy, completeness, or currency of the information provided. It is always recommended to verify any information independently and consult with relevant professionals or experts for specific advice or updates. The authors and publishers of this blog post shall not be held liable for any errors, omissions, or outdated information, or for any actions taken based on the information provided in this blog post. Readers are encouraged to use their discretion and exercise due diligence in evaluating the accuracy and reliability of the information before making any decisions or taking any actions based on it.