Hanging onto your money and handling it competently is a challenge from the time you are a youngster getting an allowance to when you become a small business owner. For an owner, it can be the make or break factor for being able to stay in business, let alone turning a profit and growing.
WHY IS MONEY MANAGEMENT ESSENTIAL
Even if you have an accountant, you still need to know how to handle your money. That means understanding the basics of bookkeeping, knowing how to make and keep a budget, and paying your bills on time.
Competence in money management sets your business up for growth. With it, you pay bills on time and earn a solid credit score. Banks, credit unions, and investors will look positively on you when it comes time to borrow or invest.
The more adept you are in managing your money, the better your cash flow will be. That is the lifeblood that keeps your business vigorous. Money from customers and investors needs to keep circulating, paying employees, settling accounts with your suppliers, and keeping the taxman happy.
Here is a look at how you can master money management in your business.
BASIC STEPS TO TAKE TO MANAGE MONEY
Use a Business Bank Account. Whatever the size of your business, even if you are just one person working on a laptop at the local coffee shop, you need to open a business bank account. Run all business-related money through this account. That means all payments from customers go into it, and all bills from suppliers get paid out of it. This is essential for the organization and to create an accurate picture for tax purposes.
Use an Accounting System. Set up your accounting books right away. Do it yourself using Fresh Books, QuickBooks or another accounting software. You can farm the entire process out to an accountant, handle part of it yourself and have the accountant handle taxes, or take care of the entire process yourself. Whichever method you choose, understand how the software operates, keep on top of what money is coming in and going out, and don’t get behind on logging transactions.
Set Up a Payment System. You need an effective way to accept money for your product or service. This can be as simple as using PayPal, or more complex using a shopping cart and merchant account. The more payment options you give customers, the easier it will be to collect what is due.
Offer Credit Sparingly. Extend credit wisely and conservatively. Check the credit score of your customers before giving them credit. Be clear and consistent with your credit-granting criteria. This will save you hours of angst trying to collect and keep the cash flowing.
Learn How to Estimate a Job. Estimates should be as accurate as possible. Understand what your overhead is, how many hours a job will take you, and the minimum you need to quote to make a profit. If you consistently charge too little in an attempt to keep money coming in, you are leaving money on the table, or worse, you run the risk of eventually going out of business. To make sure you are making enough money, track time and expense for every job.
Many accounting programs, like QuickBooks, let you produce a job-costing report for every job you handle. Review the reports weekly to make sure you are charging correctly.
Keep Your Overhead to a Minimum. Hire staff only when you can afford it and need them. If they sit around with nothing to do, you lose money. When you are starting out, don’t set up your office in expensive quarters. Spend just what you need to make clients comfortable if they come in, but avoid high-cost decorating schemes.
Put your extra money into the research and development of new products and marketing. Invest in areas that will produce a true profit.
Make a Budget and Stick to It. Budgets provide structure, which every business needs. They help you decide how much to spend in each area and how much to earmark for growth.
Base the budget on expenses from previous years, how the market is doing, how much your suppliers are charging, and your overhead. Be sure to include money for emergencies and to fund future growth.
Taking a proactive stance toward handling money radically reduces the risk that you will be caught unaware by a big expense. It will let you keep adequate cash flowing through your business, letting your business prosper and grow.
If you’re interested in discussing your business needs and learning about the solutions we offer, we invite you to contact a BancorpSouth Relationship Manager at a branch near you.
© Fintactix, LLC 2020