An effective financial management system is essential for every business, regardless of its size. Without it, you will not be able to operate your business. Each year, almost 400,000 new businesses are launched in the United Kingdom; however, only two-thirds of these businesses will survive for three years, and half of them will survive for five years. There are many businesses that are failing due to a lack of money rather than poor products or services.
Separate business and personal accounts should be maintained
The importance of this cannot be adequately expressed in words. It is a disaster when funds are commingled when it comes to taxes. Your business should maintain two checking accounts; one for short-term savings (savings or money market accounts) and one for long-term savings. There should be no use of your personal account for business transactions, and there should be no use of your business account for personal transactions. Even if a sole proprietorship or limited liability company is structured as a corporation or LLC, the sole proprietor must complete this form. In order to manage your small business finances, you do not need to dig into your personal accounts.
Measures to control operating costs
The first step in the process is to develop a budget. A good way to determine your budget is to divide your available funds by your expected expenditures. In your business budget, ensure that both fixed and variable costs are taken into account. A structured budget can assist you in saving money and avoiding unnecessary expenditures. An example would be if you rented a space for your office. Assume that you currently have a team of 10 employees, but that you plan to grow to 20 within a short period of time. In order to control these expenses, you might consider moving your operations to a coworking space. Depending on the size of your team, you can scale up your desk space requirements. Putting the numbers on paper will reveal that this small change has a significant impact on your budget.
Develop a financial plan for your business and forecast its future performance
The financial documents of a small business are essential. In addition to proving the viability of a business, investors and financiers use them to track revenue and expenses. Keep your financial planning and forecasting up-to-date so that you can make more informed decisions regarding the direction your business will take.
Monitor your cash flow
An important financial management tool for small businesses is the cash flow statement. Cash flow statements provide an overview of where your business’s money is going. Small businesses may have difficulty managing their cash flow. This tool still helps track operations, forecast expenses, and monitor investments despite these limitations.