5 Money Management Strategies Every First-Time Business Owner Should Know

October 9, 2018

Don’t overlook these key money management strategies when running your small business.

Being a small business owner is all about following your dreams and calling your own shots. But it’s also about managing your money responsibly and keeping a tight grip on your finances. At this stage of your business, that may not be as complicated as running a major corporation, but there are still several financial best practices you should be aware of. Here are five money management strategies you should know about.

1. Create a Budget and Adjust Accordingly

Creating a budget is the first place to step in managing your business finances. Many small business owners skip budgeting because it’s difficult to estimate what you’ll spend when you’re new in business and don’t have prior period numbers to use as a starting point.

It’s okay if your actual numbers aren’t spot on – even established businesses see variances – but the process will make you more thoughtful about how you’re spending your revenues and what you can do to improve next year.

How to put it into action: Start by figuring how much you bring in on a monthly basis, then deduct fixed costs that are the same each month.
Things like subscriptions, rent, salaries and insurance typically don’t change from month to month, so they’re easy to predict. Then fill in the variable costs (those that vary from month to month) and one-time purchases.

Once you’ve created your budget, look at how your actual numbers compare to your estimates each month, quarter or year. With time and experience, your budgets will become more accurate.

2. Get Your Cash Flow Organized

When you’re getting your business started, keep track of all income and expenses from day one – even if most of your numbers are zero.

It’s easy to let managing your business finances fall behind when you’re focused on the million other things you need to do to get your business off the ground. But staying on top of your accounting is incredibly important.

You’ll be thankful you took the time to set up your finances and get organized at tax time and when your business grows to the point you need to hand the daily accounting tasks off to someone else.

How to put it into action: Start using cloud-based accounting software from day one. There are plenty of low-cost options to choose from while you’re starting out.

While some small business owners start out with a simple spreadsheet for tracking income and expenses, cloud-based accounting software can end up paying for itself when you consider the time saved from automating invoices, following up on past-due accounts and attaching receipts with just the click of your smart phone’s camera.



3. Save for Retirement (Really!)

New business owners usually try to invest as much as they can back into the business to help it grow. That’s smart, but don’t forget to plan for the future – your retirement – while you’re at it.

Being self-employed often means you no longer have access to an employer-sponsored 401(k) plan to save for retirement, so it’s all the more important to take charge of retirement saving for yourself.

How to put it into action: Talk to your financial advisor or bank about your options for setting up a SEP-IRA, SIMPLE IRA, Solo 401(k) or SIMPLE 401(k).

Do your research on what each of these plans offers and how they can help you meet your retirement goals. You don’t have to funnel a ton of money towards your retirement account, but whatever you can save now may help curb your tax bill and grow tax-deferred until you need to access it in retirement.

4. Establish an Emergency Fund

An emergency fund isn’t just for personal finances. Business owners should have one, too. Odds are, your business will eventually face a less than stellar month or an unexpected expense, so it’s essential to plan for these cash crunches.

Without an emergency fund in place, something as small as a late-paying client or fried laptop can spell disaster. You may not be able to pay important bills or cover payroll.

Credit cards or other short-term loans are an option in a pinch, but they typically come with hefty interest rates. They may solve your problems in the short term, but end up costing more and creating more cash flow issues over the long run.

How to put it into action: The hardest part of creating an emergency fund for your small business may be finding the money to put away. While reinvesting in your business is important, look for ways you can cut costs or make more money.

Save your emergency fund in a savings or money market account rather than investing it. That way it will be easily accessible when you really need it. Three to six months of expenses is ideal, but don’t despair if you can’t reach that goal right away. Start small and build your emergency fund while you grow your business.



5. Remember That Time Is Money

New business owners often start out with one person running the show. Marketing and sales, accounting and product design, shipping and customer service – it’s all in a small business owner’s job description. But as you grow, it’s important to know which tasks you excel at and which ones you probably have no business doing.

Sure, you can read through thousands of pages of tax code and spend 12 hours preparing your own tax return, but what is the opportunity cost of those 12 hours? Could you pay someone else a fraction of that to handle filing a tax return for you?

How to put it into action: Once you have enough revenue-producing work to keep you busy 40 hours a week, start looking for tasks to outsource. You might work with an outside accountant to ensure your books are in order, hire a virtual assistant to handle email and other routine tasks, or outsource your social media to someone who can grow your online presence.

Conclusion

Running a small business is no easy task, but it’s easier when you stay organized and disciplined. When you dive in and get comfortable with your business finances, you’ll have a better idea of how your business is really doing, where improvements are needed and where growth is possible. The tips above are an excellent place to start and will help ensure that you and your small business thrive.

about the author

Freelance Contributor Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction and binge-watching Real Housewives.

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