Without proper financial oversight, even the most innovative companies can find themselves struggling to survive in competitive markets.
Money management involves overseeing the finances of your business through budgeting, goal-setting, tracking of income and expenses, and investing.
Here are the essential strategies to help you manage the finances of your business effectively:
1. Stay On Top Of Deadlines
Know when bills are due, especially accounts payable, loan payments and payroll. Effective deadline management requires more than just marking dates on a calendar – it demands a systematic approach to financial organisation that prevents costly oversights and maintains strong business relationships.
One way to go about this is by creating a comprehensive payment schedule that tracks all critical financial obligations at least 30 days in advance. This forward-looking approach allows you to plan cash flow requirements and avoid the stress of last-minute scrambling for funds.
You can also consider implementing automated reminders through your accounting software or calendar system, setting alerts for both the payment due date and a few days prior as a preparation window.
Late payments can severely damage your business credit score, strain supplier relationships, and result in costly penalties or interest charges. Some suppliers may even refuse to extend credit terms or require cash-on-delivery arrangements if payments consistently arrive late.
By staying ahead of deadlines, you maintain the trust and goodwill that form the foundation of successful business partnerships.
2. Monitor Spending
Know how much is spent per day, per week, per month. This granular approach to expense tracking provides the financial intelligence necessary to make informed business decisions and identify potential problems before they become critical issues.
Daily spending awareness helps you catch unusual expenses or potential fraud quickly, while weekly patterns reveal operational trends that might require attention. Monthly analysis provides the broader perspective needed for strategic planning and budget adjustments. Modern accounting software can automate much of this tracking, providing real-time dashboards that offer instant visibility into your financial position.
Regular spending analysis also helps identify which investments generate returns and which expenses might be candidates for reduction.
You should also look for recurring charges that may no longer serve your business needs, subscriptions to services you’re not fully utilising, or opportunities to negotiate better rates with existing vendors.
Such ongoing vigilance ensures that every Naira spent contributes meaningfully to your business objectives.
3. Pursue Your Debtors
Always remember customers owing money to your business and make vigorous efforts to collect them. Outstanding receivables represent revenue that belongs to your business but remains inaccessible, creating a drain on cash flow that can cripple operations if left unmanaged.
Develop a systematic approach that begins with clear payment terms communicated upfront. Send invoices promptly upon delivery of goods or services, and establish a structured follow-up process for overdue accounts. This might include friendly reminder calls at 30 days, formal written notices at 60 days, and more aggressive collection efforts beyond 90 days.
Consider offering early payment discounts to encourage prompt payment. For instance, a 2% discount for payment within 10 days often proves more cost-effective than the expenses associated with extended collection efforts.
For persistently delinquent accounts, don’t hesitate to engage professional collection services or legal counsel when the amounts justify such action.
4. Budgets
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-constructed budget serves as your business’s financial roadmap, providing direction and constraints that guide decision-making throughout the operating period. Effective budgeting involves more than tracking past expenses – it requires forecasting future revenues based on market conditions, planned activities, and historical performance patterns.
Build your budget from realistic assumptions about both income and expenses, incorporating seasonal variations and anticipated changes in your business environment. Include categories for unexpected expenses and opportunities, as rigid budgets that don’t accommodate change often become counterproductive. Regular budget reviews allow you to adjust course when circumstances change while maintaining overall financial discipline.
5. 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.
Inventory management directly impacts both cash flow and customer satisfaction, making it one of the most critical aspects of business operations for companies that deal with physical products. Too much inventory ties up valuable capital that could be invested elsewhere, increases storage and insurance costs and raises the risk of obsolescence or spoilage.
You can consider implementing an inventory management system that provide real-time visibility into stock levels and automated reordering for fast-moving items.
Regular analysis also helps identify slow-moving products that might benefit from promotional pricing or discontinuation, freeing up capital for more profitable investments. The goal is to maintain optimal stock levels that meet customer demand without excessive carrying costs.
6. Build A Cash Reserve
Keep a small cash reserve to help your business through an emergency or a lean time.
A cash reserve acts as your business’s financial insurance policy, providing the flexibility to weather unexpected challenges or capitalise on sudden opportunities. Most financial experts recommend maintaining reserves equivalent to three to six months of operating expenses, though the appropriate amount varies based on your industry’s stability and your business model’s predictability.
This reserve shouldn’t be confused with working capital – it’s specifically earmarked for emergencies such as equipment failures, economic downturns, or unexpected opportunities requiring quick action. Keep these funds in easily accessible accounts while still earning some return through money market accounts or short-term certificates of deposit.
Action Steps
Managing your business finances is not always as easy as it seems on paper. It takes discipline, knowledge and regular review to get it right.
But if you want a more tailored strategy that helps you effectively manage your business finances, then speak with us today!
| |