Properly managing money is essential if you want your business to thrive, especially if you are a small business owner. If you cannot effectively manage your cash flow, you may run into a situation in which you cannot pay your suppliers or even your employees.
A positive cash flow is vital to a business’s survival. If you want your business to survive, there are some easy, practical steps you can take to improve your money management, and in this blog, we have put together our top four tips to help keep your business alive.
Don't intermingle expenses
While it can be tempting to mingle your personal finances with your business finances, there are a lot of really good reasons to avoid this. Besides tax issues and personal liability, this could potentially lead to jumbled accounting.
Make sure to keep your business and personal lines of credit separate. When it's time to manage your money and pay taxes, this will keep things clear.
Pay bills on time
As a business owner, you will need to make sure you're paying your bills responsibly. You may need to set up reminders at the end or beginning of every month. Late fees can quickly add up if you are consistently late on your bills. Any late payments on credit cards, loans, vendor bills, and taxes will result in additional fees. Tax penalties can be especially damaging.
Hang a physical calendar on your wall and mark those days. This will prevent business bills from going unpaid and keep your business out of the red. If you need to, negotiate with vendors to extend the payment dates to 60 or 90 days. Make sure you understand the terms of your contract, like late penalties and grace periods.
Keep one eye on the future
As a business owner, your goal should be future growth. Over time, cash flow will fluctuate, and you may encounter unexpected expenses. This is a problem even for established businesses.
Keep a savings fund that can keep you operating for at least three to six months. You can also use a business line of credit or credit card to cover everyday expenses. Do this only if you can keep up with the payments.
Establish a cash flow forecast. To do this, organize your payables and receivables to figure out where your cash is coming and going. If you can do this effectively, you can predict shortages and avoid them.
Keep your money working
Keep any and all balances in accounts that will accrue interest. You can find these at almost any financial institution.
Interest-bearing checking accounts often offer lower interest rates than savings accounts, certificates of deposits (CD), and money market accounts. Try keeping your cash in these types of accounts and transferring to your checking accounts in order to meet minimum balance requirements. Try to avoid CD accounts though, as you will not be able to access the funds until a specific date without a penalty.
Cash management made simple
Operating a small business comes with its share of joys and challenges. Don't let money management become a problem that leads to your business's failure.
Whatever you are struggling with in regards to cash management, we can help. Whether you are seeking simple advice or looking to outsource your functions entirely, your team at MGA is ready to step in.