Your business needs money in order to thrive. If capital is insufficient, your business goes under. If your business is not able to make money, then it ceases operations. The fact is that you need to handle your money accordingly for your business to flourish. Cash is king, and the practices below will allow you to take good care of it.
Monitor Accounts Receivables and Accounts Payable
At its essence, a successful business hinges on it making more than it spends. As long as your income is greater than your expenses, you’re making a profit. Your Accounts Receivable are those customers that owe you money, and your Accounts Payable are the suppliers that you owe money, and you need to watch these two very carefully. By not watching the money owed to you and that owed by you, you’re ignoring the essence of business, and you could fail.
Margins are low for most small businesses, so you need to give yourself breathing room as well as take risks to outsmart your competition. That means you need to watch your cash flow so you’re never put yourself out on a limb, and can’t meet payroll or produce your product or service. Always collect your receivables on time, and never let anyone get over your terms, and you’ll have a better picture of what monies are available.
Multiple Streams of Income
Your small business has a collection of devoted customers, which feels awesome, and means a steady income stream, so you can support your plans. Counting on just this small group of devoted customers could end up disappointing you in the end. It’s like a sand castle at the beach, the water eventually comes up and brings it down. Your clients could change their mind at any time and not renew their business with you.
Your best bet is to always be marketing. Don’t just sit back and rest, you need to keep marketing and finding new clients. This doesn’t mean a new product, however, revising your product or service or adding value to what you’re doing now may help. You could look at product or services you could add that are compatible with your existing ones. In the online marketing world, it’s all about the upsell (to try to persuade a customer to buy a more expensive item or to buy a related additional product at a discount), and that’s something you may want to do too. Your safety net is always looking for new clients, that way if your current client base wavers, it won’t bring the entire business down.
Always Be Bootstrapping
When you start out you’re usually not buying things, or paying more than you have to for the items you need in your business. This shouldn’t really stop, though don’t become what I call ‘stupid cheap’. That’s where you are so cheap it hurts the business. That said, spending more than you have to on materials or staff, gives you less to spend in other areas, such as marketing. This wrong spending will ultimately have you questioning what happened.
One area you are probably paying too much is income taxes. Are you keeping all your business receipts? For any expense you claim, you must have a receipt, no exceptions. To learn about what you can and cannot deduct, talk to your bookkeeper or accountant, and if you don’t have one then you need to get one. If you put the effort in now, you won’t end up paying over again for the things you bought for the company. Your bookkeeper/accountant should understand your company, and how it works.
Another thing you probably spend on is office equipment, and this turn into a money waster fast, especially technology. Do you really need that expensive desk? Or that advanced computer? Probably not. Standing desks are great, and I do have one. However, does everyone in the company need one? That can get expensive. As I said before, don’t be ‘stupid cheap’, however, don’t go crazy either and spend on things you don’t need.
Know Your Cost of Goods Sold and Profit Margins
Your products cost money to make, deliver, and store them. This is your cost of goods sold or COGs. Your COGs are all the expenses vital to make your product that you sell. COGs aren’t just how it’s produced, but include labour, customer conversion costs, and more. The goal is to keep this number low, so when you sell you make a profit.
You don’t want to go too low on your costs, as your product quality will suffer. Your COGs are a mix of art and science. The art is in determining what people will want, and what they’re willing to pay. The science is in determining where to price it. Your pricing needs to be fair and steady. In order to compete, you must know all facets of your product’s cost, and if you do then you’ll better manage your money.
Time is Money
You can actually save, or even make, money by outsourcing work, projects, even hiring cleaners. Successful businesses outsource what they can, and as a business owner you should too; look at your weaknesses and hire for those. As they say, time is money, and wasted time is money gone. You’re not bringing in cleaners just to keep the office clean, but to lessen your employees’ stress of having to do it. If you’re employees are having to clean, then they can’t spend their time and energy on the work that needs to be done.
This works for allocating tasks, too. A sick employee is not as productive as a healthy one, so they end up costing you money. Burnout is a major cause of many employees getting sick, or worse, leaving a company. Share the load and save yourself money in sickness and turnovers. The Japanese even have a word for death from overwork called 過労死 (Karō shi). Your business is important, but don’t let it kill you or your employees.
Is this everything to keep in mind about managing your businesses money? No, but it is a step in the right direction. Always be proactive when it comes to keeping your numbers high, being reactive just gets you into trouble, especially when it comes to money. Don’t wait for the problem to be big enough to grab your attention, as you may be too late. Take control now, and these headaches won’t happen to begin with.
How to Minimize Taxes on Your Small Business
Make Tax Time Less Stressful with These Seven Tips
Does Your Small Business Need a Consultant?
Tips for Improving Your Accounts Receivable Process
Should you Claim Business Expenses without a Receipt?
Controlling Your Cash Flow Over the Holiday Season
Accounting Terms Every Businessperson Should Know
It’s Summer, Time to Delegate