Small and medium enterprises (SMEs) are the backbone of every economy. However, running a small business is not very easy. Research shows that about 50% of these businesses fail before their 3rd year in operation. The main reason for the high rate failure of small businesses is improper finance management. Here are the top four money management tips every small business owner should know.
1. Create a cash flow budget
One of the critical steps of managing SME’s finances is creating a cash flow budget. A cash flow budget entails the expected income and expenses forecast. Wrong and unrealistic budgets can result in business failure. Therefore, all small business owners must create a business budget based on educated guesses for an entire calendar year.
Creating this budget enables you to plan on the adjustments you can make on your operations if need be, to avoid getting yourself in financial problems. It is advisable to always compare the actual monthly results with the forecasted cash flow budget. The figures you will get will form the basis of your next set of projections. Over time, you will have a reliable budget to help your small business manage its cash flow and have a solid financial plan.
2. Know when your bills are due
For an SME to stay viable, it is crucial to manage cash outflow and ensure that all the business expenses are paid on time. Failing to pay bills on time could result in penalties and late fees affecting your profit margin. Therefore, it is important to create spreadsheets, charts, or any other reminders to know the amount and due dates of all your recurring payments.
3. Minimise expenses
Minimising expenses is a useful way of managing SME’s finances. Many small business owners and managers tend to waste a large amount of money by disregarding small recurring expenses. Recapturing some of the money allocated for expenses can do wonders.
4. Stay on top of receivables
Many SMEs judge their success by their sales. Although it is a good indicator of the business’s performance, you only reach a profit after the collection of money associated with the sale. A timely collection of money as issued on the invoice is advisable. There are many tracking tools that you can use to track your account receivable without extending credit terms.
All small business owners should follow the above top four money management tips. By following these tips, you will be able to successfully run your business.
Money management tips – where to find out more
Established since 1989, Tower Leasing Ltd is a funder with the support of brokerage facilities which enable companies across the UK to acquire much needed capital equipment through leasing. We create the opportunity for businesses to manage their cash flow whilst being able to secure the latest assets and technology which enables our customers to stay competitive within the market. Our services also provide the capability to deliver additional funding to support your business growth with our wide range of finance solutions. If you’d like some help with finance solutions for your business, please get in touch. Or you can read more about the various finance options we can offer here.