20 tips to manage your small business finances

When you’re running a business, knowing the state of your financial affairs inside out is one of the best ways to make sure the cash keeps flowing. Staying on top of your finances means you can avoid unforeseen business debt and have enough money to invest in and grow your business.

Take a look at our 20 top tips to help you.

Stay on top of the day-to-day money management

1. Keep accurate records. Be sure to keep track of your income and costs by recording every transaction into your accounting system at least once a week.
2. Review your costs. Business expenses can add up quickly, but reviewing them allows you to fine-tune where your money goes.
3. Have a clear business plan. This needs to state where your business currently is and where you want to get to in the coming years. It should include clear financial projections and help you anticipate and address possible future obstacles.

Automate as much as possible

The robots haven’t taken over just yet, but automating as many processes as possible could help you and your accounts team free up some time to focus on other aspects of the business.

4. Invest in business expense software. There’s a host of different software to choose from to make your life a lot easier. This can help you monitor team budgets, track team requests and approvals, and reimburse staff expenses.
5. Use invoicing apps. These let you create professional invoices with ease, send them out when they’re due and track when they’ve been paid. They’ll even chase late payments for you and apply late payment fees, so you don’t have to worry about a thing.
6. Make the most of accounting software. Similarly, the right accounting software (which can often be combined with invoicing) can help you monitor cash flow and track your finances, as well as help you file your tax return.

Separate business and personal accounts

Splitting up your company and personal accounts is always good practice for a growing business to keep on top of finances.

7. Keep a separate business bank account. Mixing business money with your personal finances is a recipe for unexplained losses and tax-related -headaches. Keeping your business’s money separate makes gauging profitability easier and helps you keep track of your expenses. Compare business bank accounts.
8. Make sure to pay yourself first. This doesn’t mean sucking up all the profit the moment you make it; start with 10% of the earnings. This is a good way to set aside money consistently and test your business’s profitability. It also provides a safety net for unexpected expenses.

Build a positive cash flow

You can keep your cash flowing in the right direction in several ways. We have highlighted a few of these below:

9. Negotiate quicker payment terms with clients. Encourage clients to pay invoices faster by offering discounts for early payment or think about charging fees for late payments. Late payment fees must be clearly stated on the invoice.
10. Speak to your suppliers. Similarly, see if you can negotiate a better deal with your suppliers. Maybe they could offer you a discount or longer payment terms in return for your regular business.
11. Reduce unnecessary spending. Try to keep travel costs to a minimum and see whether you can get a better deal by regularly comparing energy, internet, insurance and mobile phone providers to save money.
12. Consider renting instead of buying. Leasing equipment instead of buying helps you avoid maintenance costs and can also prevent you from overpaying on equipment only needed for a specific time. You could also consider renting your office space, as it makes relocation and expansion easier.
13. Improve your inventory. Regularly carry out inventory checks and make a list of items that are not selling well. These tie up a lot of cash and can hurt cash flow, so you need to get rid of them – even if you have to sell them at a discount.
14. Create a cash flow forecast. This can help you assess whether you’re going to run out of money and help you plan ahead. Your cash flow forecast should show your business income and outgoings for the next few weeks or months. You can do this by adding up all the cash coming into the business and then calculating all your planned business expenses. Subtract your outgoings from your income to get the net cash balance.

Take care of the bigger business issues

Taking care of your bigger business issues early and having strong foundations to help stabilise problems that could arise in the future could be the difference in your business crumbling or expanding.

15. Be careful when expanding. Make sure expansion is done steadily and wisely. Pushing large amounts of money into expansions that are too quick and too drastic can be disastrous.
16. Take control of your own marketing and public relations. Follow a PR and marketing strategy to make sure efforts are intentional and focused.
17. Don’t wait too long before seeking a loan. An easy mistake to make is waiting until your business is in financial trouble before applying for loans or other credit. This is exactly when you will be least likely to receive financing. Consider applying for a business loan when your financials are still in a good state. This way, the loan can be used for expansion or as an emergency line of credit instead of rescue.
18. Make sure you have enough capital. Small businesses tend not to have enough capital to get themselves through the startup phase. To prevent this, have 3 months’ living expenses saved plus the amount you are expecting to need for the first 3 months’ business expenses. Plan as if you expect to receive no business revenue.
19. Check and improve your business credit score. Your business credit score can help you access better credit deals, so keep a close eye on it. You can take steps to improve it by paying bills and loan repayments on time.
20. Stay on top of tax bills. If you’re a sole trader, you’ll pay income tax through your self-assessment tax return. If you’re a limited company, you’ll pay corporation tax. And if your annual turnover is more than £120,000, you’ll need to submit a VAT return, too. Make sure you understand what tax you need to pay and when, as late payment penalties can be high.

Pros and cons

Bottom line

A well-managed business is far more likely to be successful, turn a profit and expand. To do this, you’ll need to be organised, regularly monitor your outgoings and earnings and be prepared to make cutbacks where necessary. Following the tips mentioned above should help you gain financial control and ultimately help you achieve your business goals.

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Written by

Rachel Wait

Writer

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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

Co-written by

Valentina Cipriani

Writer

Valentina Cipriani was a writer at Finder UK. She wrote news, features and guides about banking and credit cards, helping people to improve their financial lives. She holds an MA in International Journalism. See full bio