Becoming a business owner can be one of the most stressful yet rewarding experiences that an individual can go through. If you manage your money wisely, the chances are that the rewards will outweigh the stress. An effective money management strategy can improve your cash flow and see your business strive. Below, we’ve put together some quick tips to help you manage your money as a business owner.
Create a Cash Flow Budget
Creating a cash flow forecast can help you to clearly see when money comes in and goes out of your business. By doing this, it will help you to to manage when you need to pay your expenses and to identify any sensitivities in your cash flow that may need a little more attention. It’s important to keep your cash flow up to date and make any changes that may occur in line with your operations. Apps like Pulse are great for inputting your cash flow and helping you to manage your inflows and outflows.
Effectively Manage Your Credit Offering
To win business, firms often offer extended payment terms, usually around 30 days. Whilst this is a beneficial factor for those interested in doing business with you, this process needs to be managed carefully and effectively. If the revenue coming into your business is always 30 days in arrears, you need to account for this in your cash flow.
For a new or small business, start small. It would be a mistake to offer a large amount of credit from the offset. If your customer fails to pay on time, you run the risk of not being able to cover your expenses.
If you decide to offer credit, always be strict in enforcing the terms. It is important that the customer understands that if they fail to pay you on time there will be a penalty implemented in terms of a fee or interest.
Don’t Mix Business and Personal Expenses
One of the first things you should do when you start a business is to open a business account that is completely separate from your personal bank account to avoid a messy and complicated financial situation. If you get into the bad habit of using your business debit/credit card for personal expenses it can be a slippery slope. You may tell yourself that you will pay it back, but in reality do you?
As a business owner, taxes can be a headache at the best of times. Having a separate, identifiable trial of business expenses, including receipts, without an overlap with personal expenses will make this process much more straightforward. If done right, you also may be able to take advantage of business tax deductions.
So often business owners are under the impression that “it will never happen to me” and therefore, they don’t protect themselves and their money in the event of an accident to a third party.
For anyone who runs a business, it is vital that they have an insurance policy in place in case anything goes wrong. Companies like Caunce O’hara can provide help to firms that should have public liability or professional indemnity cover in place. If someone simply slips in your place of work, breaks their leg and has to have a number of weeks off work, you will not only have to cover the cost of your own legal expenses, but you may also be made to pay compensation for loss of earnings to that individual.
So many people get caught out because it isn’t a requirement by law. However, by paying monthly amounts for an insurance policy, it can save you having to pay out hundreds of thousands in legal fees and compensation in the future.
Guest post courtesy of James Flynn. From a young age, James discovered a love for writing and began creating fictional stories in his bedroom. Fast-forward 24 years and he is now an experienced writer having worked in content producing roles across various sectors such as fashion, technology, finance, and healthcare. In early 2018, James launched his own freelance content writing business to continue his love of writing and feed his ever-growing portfolio.