Last Updated on October 18, 2022 by Editor
There is no dearth of business ideas in 2022 and starting a business is not an issue today. The advent of technology has led to millions of people taking a chance and starting their very own small businesses. small business financial management is a key responsibility entrepreneurs must shoulder in the course of starting and growing their business. While some of these entrepreneurs may be well-versed in business and management of finances, GoRemotely reports that 60% of entrepreneurs admit they do not have sufficient knowledge on the subject.
This can have quite a negative impact on the business, and with the appearance of more and more small businesses on the scene, financial knowledge may prove to be the deciding factor on who’s ahead in the competitive race. Therefore, entrepreneurs must brush up on their money management skills for their small businesses, so they can traverse the harsh business landscape of 2022.
6 simple yet effective financial management tips for small businesses
Start with the basics
Nobody expects an entrepreneur to master financial management overnight; however, learning basic small business financial management is relatively easy and necessary for any entrepreneur today. With the internet in our computers, smartphones, tablets, and devices, there is no dearth of resources available for learning. Financial jargon is a good place to start. Financial terms like revenue, cash flow, equity, etc. pop up consistently in business, and knowing your way around the jargon can prove very helpful in learning the more complex concepts later on. Understanding the four basic financial statements is another crucial matter, as they contain all of the business’ important financial data. By mastering the basics, entrepreneurs can confidently approach and competently manage their small business finances at the start.
Keep an eye on the cash flow
Cash flow refers to the movement of cash in and out of the business through earnings and expenses and is recorded in the cash flow statement. Managing cash flow is critical for the survival of any business, with Fundera’s report “Small Business Statistics” citing poor cash flow as the reason 82% of small businesses failed.
By keeping a strict eye on the cash flow, entrepreneurs can intervene if necessary to maintain positive cash flow. Positive cash flow indicates a healthy business, which can help with securing investments and boosting the value of the business. The bottom line is that controlling the cash flow is a necessary skill for small business money management.
Design a budget
A budget is essentially an estimation of earnings and expenses for a future time period. Designing a budget is necessary to discuss when talking about SME financial management, as it provides a clear picture of what to expect when it comes to earnings and expenses. A well-researched budget can guard against surprise expenses, ensuring that the business is financially prepared for any new venture. A budget also prevents overspending, keeping the business on track and spending optimally. A small business without a budget may find it difficult to manage cash flow. Without a plan for future income and expenses, there is a great risk of expenses getting out of hand.
Segregate personal and business finances
In the course of management of the SME’s finances, entrepreneurs tend to use their personal bank accounts for business purposes; however, creating a dedicated bank account for the business should be their number one priority. By performing all transactions through this account, entrepreneurs can ensure financial segregation between the personal and business heads. Segregating personal and business transactions is very important for preserving the transparency of the business’ financial data. Not segregating transactions can result in the financial records being mixed up and financial transparency being compromised.
The accounting and financial management scene is changing rapidly, with technology proving to be a great asset in small business finance management. Technology can be called the great equalizer when it comes to business, giving small businesses the opportunity to compete with established corporations. Expertise Accelerated provides great insight into the subject in its publication “The Future of Accounting: Demand and Evolving Technology 2022”, highlighting innovations like cloud accounting, automation, as well as outsourcing to be the future of financial management, especially for SME’s. Therefore, entrepreneurs absolutely cannot ignore technology, especially when it comes to the financial management of a small business.
Get professional help
It is never a bad idea to get help. Entrepreneurs may be able to manage small business finances to an extent, but it is optimal in the long run to hand over the duty to a professional accountant so that focus can be given to revenue-generating activities. A professional accountant is well-versed in financial matters and can manage business finances for the SME much more efficiently. On top of standard bookkeeping, professional accountants can provide an expert opinion on the business’s financial health as well as advice in future decision-making.
While certainly helpful, professional accountants are quite expensive. This is a big reason why many entrepreneurs choose not to get professional help to manage the finances of their small businesses. While this may be a difficult challenge to overcome, high-quality staff augmentation solutions can help make accountants and accounting services affordable for entrepreneurs.
As defined by Toptal, “Staff augmentation is the use of outside personnel on a temporary basis to augment the capacity of your organization.” In recent years, firms specializing in remote staff augmentation, such as Expertise Accelerated, have grown in popularity, providing access to high-quality offshore talent at a fraction of the US cost. Making use of these services can help entrepreneurs get the professional help they need in the management of their small businesses finances.
To summarize, entrepreneurs must become savvy in small business financial management to keep up with the fast pace of the prevailing competitive environment. Taking simple yet effective steps like learning the basics of finances, monitoring cash flow, and designing a budget can lead to great improvement in business performance. Embracing new technology and ideas like cloud accounting and staff augmentation is also a fantastic way for entrepreneurs to support their small business financial management. Expertise Accelerated’s finance outsourcing services are some of the best in the business and can prove to be a great help for entrepreneurs trying to manage the finances of their small business at a reasonable cost. The bottom line is that in 2022, entrepreneurial success requires a strong focus on the effective management of small business finances.