Managing finances is the nerve center of any small business. However, the majority of entrepreneurs don’t seem to understand its importance. Namely, a recent report shows that more than 82% of companies fail due to funding issues. In order to prevent this from happening on time, you need to build a solid budget management strategy.
Here are some crucial steps you need to take.
1. Go with Cloud-Based Accounting Software
With the advance of organizational tools and platforms, we have moved almost all aspects of our business management to the digital landscape. One such example is accounting. These options facilitate the management of invoices, bills, and receipts, giving you the opportunity to spend less time on doing bookkeeping and focus on other important areas of your business growth.
Namely, by transferring your current accounting workflow to the cloud, you will improve business organization for both in-house and remote workers, nurture strong relationships with distributors, as well as store, access and monitor accounting data at any time and place. There is a wide range of sophisticated and yet affordable cloud-based accounting platforms, including FreshBooks, Xero, QuickBooks, Kashoo, and The Sage Group.
2. Make Regular Adjustments to Boost Cash Flow
Every small business faces financial issues, sooner or later. However, it is the way you handle such situations that determines whether you’re going to survive or not. If you notice that your business is experiencing problems at specific times of the year, you should invest your time and effort into determining the actual cause of the problem and finding the best solution for it. In this case, making minor adjustments might do wonders when it comes to regulating cash flow.
For example, you should increase your sales by attracting new customers. However, you need to be careful when doing so. Namely, if your customers use credits to make purchases, you will increase only your accounts receivable and not the actual revenue.
Second, speed up the receipt of receivables by having one bank covering all your banking needs, asking your customers to pay with depository transfer checks or offering pricing discounts to them if they pay on time.
The same goes with the credits you give to your customers. All you need to do is ask them fill out a credit application and evaluate their eligibility to pay you on time.
Finally, you need to choose a reliable funding option in case you need extra money immediately. More on that below.
3. Find an Effective Way to Finance your Business
To improve your capital, you need to choose a funding method that meets your needs effectively. For example, many startups and small businesses go with a bank loan. However, you need to keep in mind that securing it is a daunting task. Namely, in order to be eligible for a loan, you need to have a clean credit history, which is impossible for any cash-strapped startup or small business. Not to mention that it might take up to several months for a bank to process your application.
If you desperately need money for immediate expenses, you should go with some simpler, faster and more reliable funding options. For instance, you could employ invoice factoring or apply for a personal loan and boost your cash flow within 48 hours. On the other hand, if you’re not in a hurry, you might consider some other financing methods, such as crowdfunding, government grants or angel investors.
4. Measure your Financial Performance Regularly
The majority of small business owners do a thorough analysis of their finances only when it’s time to pay a tax. However, in order to manage your budget effectively, you need to keep track of it regularly. In other words, it’s immensely important that you make finance monitoring and measuring a part of your everyday management routine. Good accounting software will provide you with invaluable reports on your expenses, some of which are:
- A balance sheet shows how well your business is managing its assets and liabilities. It informs you about both long-term and short-term debt, as well as tells you what types of assets the company owns and how these assets are financed.
- An income statement, also called the profit and loss statement, reports your company’s operations and performance for a particular accounting period. Logically, it covers numerous factors, from sales and revenue to net income and profit margins.
- A cash flow statement, as its mere name says, shows the cash flowing in and out of your company. As a combination of the balance sheet and the income statement, it is probably the most significant financial statement.
No matter how amazing your business idea is, if you don’t have solid cash flow first to support it, it stands no chance of surviving in such a turbulent small business ecosystem. Only by developing a step-by-step budget management strategy will you be able to maximize your revenue and focus on other aspects crucial for building a recognizable brand in your niche.