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Many business owners today are struggling to stay afloat due to the recession. Even those who were fortunate enough to start their business at a time of economic prosperity feel the pressure of an unstable job market and skyrocketing costs. The reality is that it’s difficult for any company, regardless of its size or capital, to enjoy financial security in today’s economy. In this article, Maxim Gorin will provide a few tips for managing your small business finances.
Understand your Business Finances
The first step to managing your finances is understanding exactly how much money you have coming in and going out. Start by creating a budget – this will help track your expenses while ensuring you aren’t spending more than you are bringing in. It’s also essential to monitor your business’ profits and losses each month. By doing this, you can make better financial decisions in the future and ensure your business is actually making a profit. It’s important to be realistic when setting your budget – if you’re not careful, you may end up cutting back too much on necessary expenses like marketing, equipment, or employee retention.
Set a Budget and Stick to it
Set a budget and stick to it as closely as possible once you have an idea of your monthly income and expenses. One way to make this easier is to separate your expenses into different categories (e.g., rent/mortgage, supplies, utilities, etc.) so you can easily keep track of where your money is going. A detailed and realistic budget is one of the most necessary tools for guiding your business. A budget provides essential information for operating within your means, managing unexpected challenges, and turning a profit. A proper budget will identify available capital, estimate expenditures, and help to anticipate revenue. Business owners must continually refer to their budget in order to know where to make adjustments.
Save for the Future by Setting Aside Some of Your Profits
One of the best ways to ensure financial security for your business is to save some of your profits each month by setting aside money into a savings account or investing in stocks and mutual funds. Another option is to create a line of credit for your business that gives you access to money when you need it without taking out a loan. It’s also critical to have a savings goal – whether for its an emergency fund or future business investments, make sure you’re setting aside some of your profits each month. If you’re unsure how much you should be saving, start with at least 20% of your monthly profits.
Track Your Spending Habits to Avoid Overspending
To ensure you’re not overspending on unnecessary items, track your spending habits for a month or two by recording everything you spend money on – even small purchases like lunch, office supplies, etc. If you’re not sure where your money is going, try to identify areas where you could be overspending. Once you have a better idea of where your money is going, you can start making changes and cutting back on things that aren’t necessary.
Cut Back on Unnecessary Service
One way to reduce your monthly expenses is to stop paying for services you don’t use. For example, if you have cable TV but never watch the news or sitcoms, consider canceling your subscription and using an online streaming service instead. Try switching to a less expensive cell phone plan. Another way to live within a budget is to cut back on things you can do without, such as eating out at restaurants every night of the week. Or, if you have an expensive hobby that isn’t helping your business in any way (e.g., skydiving), consider selling off some of your old equipment and using the money for something more useful instead. You could also save money by reducing the number of employees you have on staff – this will help reduce your monthly payroll expenses.
Now you know how to set a budget and stick to it by saving some profits each month, tracking your spending habits to avoid overspending on unnecessary items, and reducing monthly expenses. While these are some basic money principles, they’re an excellent starting point to inspire you to implement more effective financial management strategies in your business.
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