Small and Medium-sized businesses have different challenges altogether when it comes to operations. Bringing in new business is tough as it is, and add the concern of a steady cash flow, and we have the business owner under pressure. This is where Financial Management becomes critical to sustenance of the business.
Finance is an important aspect of any business – large or small, new or established. Financial Management acts as the key to driving the business in the desired direction.
It allows better decision-making, since business owners have more control over budget-related activities.
Effectively managing finances assists in identifying problems in advance, which gives the strategists ample time to plan their moves to counter it.
10 ways to improve Financial Management
There are some ways Small and Medium-sized businesses can get significantly better at managing their finances. Let’s look into them.
- Pay yourself appropriately
Business owners, especially those of smaller businesses tend to get so focused on the capital requirement of their business, they do not pay themselves for their worth. As important as it is to re-invest into the business, it is equally important to pay oneself appropriately. First and foremost, it reduces stress of declining personal finances. Next, it replenishes the savings you invested into the business, as capital. And lastly, it keeps the business owner’s credit score going well, which in turn adds credibility. - Keep your personal and business finances separate
As a general rule of thumb in business, it is advised to keep your personal finances independent of business finances. This way, liabilities of one do not affect the other, and your business can claim tax-deductions on certain business activities. Merging the two, could create a lot of confusion in maintaining accounts. - Budgeting
Creating and following a budget, makes it easier to manage accounts and bookkeeping. It helps you predict revenues and expenditures, almost to a precision.
Preparing an operational budget for the year can work wonders, since it grants you details to fixed costs, variable costs, and your business’s operating expenditure.
Budgeting shows you the true standing of your business. - Business Financial Planning
A crucial step, which not many plan for. While a lot of emphasis is laid on the overall business plan, hardly any thought is given to the individual plans for finance, marketing, and organisational structuring. Planning for Business Finances, not only readies you for the future, but also helps you set goals accordingly. Your bookkeepers will be able to organise and manage records and accounts with greater ease. It will also lead you to learn and prepare for taxes, beforehand.
The business owners can understand the needs of their business, at a given point in time, with careful financial planning – distinction between investing into it or saving up. - Loans
Not all loans are bad. Take the time to learn about the various types of loans available to small and medium-sized businesses. Then list the ones that seem good for your business, in particular. Enquire about them. There are options of collateral-free loans with very competitive interest rates, which are targeted towards boosting businesses.
Loans can help you in combatting the market fluctuations, cater to your emergency needs and even float your overheads until the next payment. - Line of Credit
Having an extended line of credit, grants a business, solutions to immediate funding needs. Cash payments, salaries can be covered through the credit advances.
Furthermore, it allows to deal with changes in variable costs of the business. - Corporate Credit
Having a corporate credit card can prove to be a powerful tool in the arsenal of a business’s finance. It boosts the purchasing power of the company and allows the business to access short-term credits at 0% (or very minimal) interest rate. Another advantage is the fact that the limit for corporate credit cards is higher than personal credit cards.
Using the corporate cards ensures that your personal liabilities remain unaffected. - Manage your supply chain
For those businesses in manufacturing or production, it is necessary to maintain a certain inventory to avoid unnecessary delays. This also caters to any emergency orders or replacement orders. Managing supply chain also includes the logistical support for your business. Ensuring these are regularly audited, will keep your finances on track and avoid any unrequired expenditures. - Examine your ROI
It is an absolute must for small businesses to know what amounts they re-invest into the venture, and thus, plan ahead for expected ROI. This also helps set a timeline for strategic goals. Returns on Investment are interlinked with the budgeting and Business Financial Planning. - Smart Payroll Systems
Payrolling has become better with the development of technology and further eased by digitalisation. Small businesses must use this to their advantage by picking the right software system. This will let them store information better, streamline payments (salaries) by directly transferring into the employee accounts, simultaneously. Business owners can avoid the issues faced when the business account must hold a certain amount for clearance of cheques. It becomes difficult to anticipate when different employees may deposit individual cheques. With payrolling software, payments can be scheduled ahead of time.
The onset of digital products has made the life of small business owners easy. The number of options available have made prices competitive, and thus affordable to them.
With that, here is a bonus tip:
- Use current apps and programs
There are a variety of apps and programs designed for small businesses, which allow automation of processes, payments, and documentation. Businesses will save time, effort, and any extra expenditure towards manually carrying out these fixed or recurring tasks.
Is it easy to be a small business owner in this post-pandemic era?
Are you aware of the schemes specifically for SMEs?
Are you using Fintech to ease your business activities?
Let us know in the comments below.