Money management involves overseeing the finances of your business through budgeting, goal-setting, tracking of income and expenses, and investing.
A considered money management plan will help you avoid negative cash flow and keep your business on track to turn a profit.
A weak money management plan can cause problems like late payments to creditors and suppliers, late collections from customers and, even worse, not having cash to cover expenses.
Poor financial management is one of the leading reasons small businesses fail within their first few years of operation.
To help you make smart money moves here are 5 money management tips for business owners.
1. Stay On Top Of Deadlines
Know when bills are due, especially accounts payable, loan payments and payroll. Missing payment deadlines can result in late fees, damaged vendor relationships, and unhappy employees.
Consider setting up automatic payments for recurring expenses and using calendar reminders for variable costs.
This proactive approach prevents the chaos that comes with scrambling to make last-minute payments.
2. Monitor Spending
Know how much is spent per day, per week, per month. Without consistent monitoring, expenses can quickly spiral out of control.
Modern accounting software makes it easier than ever to track expenditures in real time, giving you greater visibility into your cash flow.
Regular spending reviews can help identify unnecessary costs and opportunities for savings before they impact your bottom line.
3. Pursue Your Debtors
Always remember customers owe money to your business and make vigorous efforts to collect them.
Outstanding invoices represent money you’ve already earned but can’t use. Implement clear payment terms, send prompt reminders, and consider incentives for early payment.
For persistently late-paying clients, you might need to adjust your terms or reevaluate the relationship altogether.
4. Separate Business And Personal Funds
Do not make personal expenditures from your business account. Or make business expenses from your account.
Maintain separate bank accounts for your business and yourself, and never mix them. This separation isn’t just good practice, it’s essential for accurate financial reporting, tax preparation, and protecting your assets. Combining funds creates accounting nightmares and can jeopardise your liability protection.
5. Budget
Resist the temptation of spending without a plan or purpose.
Create a budget for your business, and make a reasonable effort to stick to the expense and revenue goals that you have set for it.
A well-designed budget serves as your financial roadmap, helping you allocate resources effectively and measure performance against projections.
Review and adjust your budget regularly to reflect changing business conditions and priorities.
6. Managing Inventory
Watch your stock. Ordering too much will mean items gathering dust in your storage room. You will run out of stock and turn away customers if you don’t order enough.
You have to constantly maintain a balance. Excess inventory ties up valuable capital and storage space, while stockouts lead to lost sales and disappointed customers.
Implement inventory management systems that help you maintain optimal stock levels based on sales patterns and lead times.
7. Boost Revenue, Cut Costs
Look for ways to cut costs and increase revenue if your business is experiencing difficulties in finding cash to meet its expenses.
This might involve re-negotiating supplier contracts, eliminating underperforming products or services, or exploring new market opportunities.
Remember that sustainable growth comes from strategic improvements, not just aggressive cost-cutting that could compromise quality or service.
8. Build A Cash Reserve
Keep a small cash reserve to help your business through an emergency or a lean time.
Financial experts recommend maintaining enough cash to cover at least three to six months of operating expenses.
This buffer provides peace of mind and operational flexibility when unexpected challenges arise. Start small if necessary, gradually building your reserve through consistent contributions.
This article is extracted from The Small Business Handbook. Get a copy to get more practical insights about starting and running your business in Nigeria.
Action Steps
These practical financial tips provide a solid foundation for building your business success.
But you don’t have to stop there. Get tailored financial insights that can help move your business from struggling to thriving.
Speak with a business expert today.