Running a small business is a constant balancing act between cash inflows and outflows. You need to manage your finances to make sure you have enough to purchase inventory, pay your employees, and keep the lights on while investing in the future of the company.
Most small business owners don’t readily admit they need help managing their company finances, but many do. It’s always a good idea to talk with your accountant or research the most current CPA learning materials to see what type of financial advice your can get for running your small business. It will be worth it in the long run.
In this short guide, we will discuss seven unique ways that you can better manage your company’s finances and create a more efficient small business.
1. Don’t Spend Too Much on Inventory
It’s a common problem for most small business owners, especially those in the retail space to over spend on inventory purchases. This over buying comes in two different types of purchasing habits.
First, small business owners often have the idea that they need to purchase enough from vendors to get published discounts. Although discounts are good, you can’t purchase too much inventory just because you got a discount on it. You need to be purchasing the right about amount of product that will actually sell in a timely fashion.
Second, business owners often get stuck in the trap of purchasing too much of a product simply because they like it. This purchasing bias clouds your vision and often causes you to stock up on products that other customers don’t want.
Just because you like it doesn’t mean your customers will. Only purchase what is going to sell.
2. Talk to Other Small Business Owners
It’s a common phrase that almost 50% of small businesses fail. According to Entrepreneur, that number might be exaggerated, but the point is that you can learn from others.
Talking to others in your space is always a good idea. Obviously, your competitors will be less likely to talk to your about financial topics, but other small business owners in similar industry who aren’t direct competitors will probably be more than happy to share some of their insights.
Network and talk with other small business owners in your area to see what is working for them and what type strategies they use. It’s worth looking into the NFIB, your chamber of commerce, and other local business owners clubs that you can network with other likeminded people.
3. Hire a CPA
Your certified public accountant is your friend. He or she is the closest person to your books and your financial business. Always take the time to ask them questions about what they’ve seen your finances and if they have any suggestions for things you can do better.
Keep in mind that you can also talk to other accounting professional as well. Most accounting professional with an accounting credential will have detailed knowledge of all financial aspects of small business, so poke their brains and see if there are things you can implement to make your business better.
4. Watch Your Cash Flow
Pay attention to where you spend money and where you make money. Analyzing your cash flows is probably the most important part of running any small business.
Constantly trying to grow your top line sales isn’t going to be very productive if you are spending more than you are bringing in. You have to analyze your cash inflows and outflows to get a complete view of your business.
Cash isn’t king. Cash flows are king. You need to invest your money into things that are going to bring more money into the company. This leads to the next point.
5. Look for Opportunities
There are always opportunities to grow your company. Start by looking at your current product line to see if there are any complementary goods that you can add on to your products as a convenience to your customers. Chances are, there are quite a few products that your customers use along side your products that you don’t sell.
If you aren’t offering these products, your customers are being forced to shop at your competitors.
After you identify some additional products to match up with your current offering, take a look at your competitors and see if they offer anything that you need to include. Again, chances are, you will find a few additional things to add to your offerings.
6. Minimize Costs
There are two sides of the financial equation in any business. You have sales and expenses. Too many small business owners only look at sales when they are trying to manage their companies. They always want to grow total sales, but they fail to look at an equally important line item: expenses.
Minimizing expenses can often increase your profits more than growing your sales. Also, it’s often easier to decrease expenses by 10 percent than it is to increase sales by the same amount.
Analyze your expenses and see what are easy items to cut. These could include excess inventory, services you don’t need, or even extra staffing.
7. Inspire Your Employees
One area of finances that most business owners don’t talk about is the contribution of employees. Too many times employees are viewed as an expense and not as an asset.
If you encourage your employees and inspire them to help the company they will. Treat your employees right and encourage them to develop new ways to cut costs, save time, and improve the company. If you do this, your staff will improve your company finances for you.
Bottom Line
Managing a small business’ finances is a challenging job. As a small business owner, it’s tough to juggle all of the hats that you need to wear in order to keep your business profitable, but having a keen understanding of how to manage and improve your company’s finances is key.
Once you understand and implement a few of these strategies, your company will become more efficient and hopefully more profitable.
