10 Tips for Excellent Financial Management

10 minute read

“You have to understand accounting and you have to understand the nuances of accounting. It's the language of business.” - Warren Buffett

If accounting is the language of business, it is important to master this language. Many small business owners never gain full fluency because they are not financially trained. Personal finance is something any responsible business owner should learn as it extends to your business. You can be a great business person with an amazing idea that sells, but if you’re not accounting trained, you might miss out on deadlines or fail to fully optimise your finances.

Common mistakes include missing tax deductions, failing to make payments promptly, or simply not properly advancing your business to bring it to the next level. While these mistakes can cost you greatly, there are ways to stay ahead of your finances.

If you find that your finances are difficult to control, our expert accounting team at Sleek has provided 10 easy-to-follow financial tips for excellent financial management that will help alleviate the pressure and give you peace of mind as an entrepreneur.

Watch the video below or read on to view our financial tips! 

Here are 10 personal finance tips for business owners

Financial Tips For Business Owners

Tip 1: Keep your accounting records up-to-date

This is the foundation of excellent financial management. With up-to-date records, you’ll always have a handle on how you’re tracking against targets. If you’re off track, you can quickly change tactics.

Updating regularly will also save you a major headache at tax time. Rather than locating all your bills, receipts and invoices at the end of the year, you can update your records each week, or hire a bookkeeper to help automate and make things better.

The sooner you begin implementing this, the lower the impact on your business.

Tip 2: Learn to love your financial statements

Your financial statements are powerful tools that are key to your financial success. Investors, bank managers & suppliers are all likely to use your financial statements to understand the financial situation of your business.

They’re investing in you to run your business well, and they’ll expect you to understand your business’ financial statements to ensure you’re financially healthy. Plus, going through your financial statements will give you excellent insight into your financial planning.

There are 3 financial statements you need to learn to love:

Profit & Loss

This helps you understand the income coming in, the expenses going out, and that all-important gap in between–your profit. Knowing the key components of your profit and loss means you have a better idea of what you need to change to increase your profit.

Balance Sheet

This is a summary of what your business owns (your assets), what you owe (your liabilities), and your equity at a specific point in time. It’s an important tool that allows you to visualise whether what you own covers what you owe.

When money gets tight, your balance sheet forces you to think about your options and whether you might need some additional funding.

For example, it can help you understand whether the cash you have on hand can cover your loans and bills from suppliers.

Statement of Cash Flows

This shows you how much cash you’ve spent & earned in a period, and the key drivers. As a business owner, you need to be keenly aware of your cash position. Profit is only useful once you’ve converted it into cash from your customers. You can then use it to fuel your business.

If you’re wondering how to write a financial statement, it’s all outlined in this article

Using a financial management software may be in your best interest

Tip 3: Leverage financial management software

Save yourself precious time by using accounting software and financial analysis tools. You’ll soon find that you’re free to focus on growing your business.

Here are some of the benefits:

  • They’re incredibly intuitive and easy to use.
  • They’re online–your team can all work simultaneously, and you can update your books and view your finances from anywhere.
  • They’re automated–they’ll interface directly with your bank and save you from manually transcribing. They can even draft, send, and chase payment of your invoices!
  • They make things simple by creating financial statements, turning finances into beautiful charts, and helping you build your first budget.

If you’re looking for a hassle-free solution for your accounting needs, try Sleek Accounting Software. Our simple accounting solution is powered by in-house expert accountants, financial advisor, and comes with a free business account. The software makes it easier for you to reach your business financial goals.

In addition, you can explore other integration tools that provide solutions to all your back-office admin needs from one single platform. 

Need help with accounting?

Tip 4: Cash is King

You must prioritise cash for the health and longevity of your business. Running out of cash is the #1 reason small businesses fail. Here’s how you can manage your cash effectively:

  • Keep a cash reserve aside for unexpected expenditures, or a low-income month.
  • Keep a business forecast to anticipate any shortfalls, and plan for alternative funding like overdrafts or loans.
  • Remember, cash flow is more important than profit – you might have made a huge profit on a sale, but if your customer isn’t due to pay you for 30 days and you need to pay your supplier now, you need to ensure you can make ends meet.

One mistake business owners make that skew their financial plan is when they rely on credit cards too much. While credit cards can be a great tool to help businesses grow, they should not be used as a primary source of funding. Unfortunately, many businesses fall into the trap of relying on credit cards for their operations, leading to an accumulation of credit card debt that can be difficult to pay off. This financial advice is something a lot of business owners need to hear. 

Credit use should not be taboo for business owners but it should be approached cautiously

Tip 5: Separate business from personal expenditure

Always open a separate business bank account! This is the first rule of corporate finance. You need to know if your business is profitable and cash-positive in its own right, among many other benefits. You won’t have that visibility if you’re intermingling your personal and business expenditures.

It will also keep you from complications when it comes to tax – your personal expenditure is not deductible and will need to be manually sifted out if you don’t separate those accounts.

So keep a savings account where you keep your personal money. This is where you will get money for all your expenses including vacation money. Then make sure money for and from your business goes to a different account.

If you want more information on opening a bank account for your business, you can check our how-to guide here.

Tip 6: Build a budget that reflects your business goals

Your business should always have a budget in place, which might seem burdensome at first, but you can always start simple and add to it later.

Your budget will help you build a realistic plan for growth, answering questions like, “How many new clients do we need to earn 20% more revenue?” and, “What expenditure do we need to ensure we have capacity to find and service those new clients?”.

If you want to prioritise spending on all your exciting ideas, your budget helps you rationalise what you can and can’t afford, protecting your cash flow. It can also guide you toward a specific profit figure that represents your plan to save for a house, a new car, or a family holiday.

You want to maintain control over performance. Regularly comparing actuals to a budget gives you the peace of mind that you’re on track to achieve your goals, or highlights when you aren’t –  allowing you the time to course correct.

Do you want to know how to create a business budget? Read our article on the subject here.

Tip 7: Be proactive, not reactive!

Use forecasts to anticipate and plan for challenges and growth. While a budget sets out your goals, a forecast shows how you’re likely to perform against those goals, based on the latest information. Business can be volatile, and maintaining a live financial forecast keeps you focused on safeguarding the future success of your business.

Forecasting is also useful to set out the longer-term plan to build a healthy business or to visualise various future scenarios, such as how much you can afford to increase employee salaries

Tip 8: Routinely scrutinise your expenses & pricing

Profit = revenue minus expenses. Naturally, increasing your revenue or decreasing your expenses is going to result in greater profit.

Scrutinise expenses and ensure you are getting the best value for your money, and make sure not to spend on anything that isn’t vital to operating or growing your business.

Pricing can be your most powerful tool to improve profits. You should keep an eye on what your competitors are doing and even seek feedback from your network on your pricing strategy.

Tip 9: Prioritise those activities that will bring in the most money

As a small business owner, you’ve got a million things on your mind, but you must maintain laser focus. A good way to prioritise is to focus on things that will bring in the most cash first.

You can also outsource work! Understanding your finances is important, but outsourcing the maintenance of your accounting records to a bookkeeper can help you focus on finding new leads.

If you want to learn more about optimising cash flow, take a look at 3 Effective Ways to Save Money as a New Business

Tip 10: Don’t be afraid to ask for help

When you’re running a business, there is a lot to wrap your head around – you should absolutely ask for help! If you’re struggling to understand your finances, do some further research, keep an eye on Sleek’s YouTube channel for more financial tips and tricks, or ask for help from your finance friends! Don’t neglect to understand your financial health for yourself.

If you simply don’t have any time, speak with an accountant, a finance expert or a trusted resource like Sleek to give you the peace of mind that someone is keeping your accounting records up-to-date and monitoring the financial health of your business. 

Additional money tips for business owners

Additional Personal Finance Tips

Now, you may be running a business but that does not mean you should forget about your personal finances. Now that we’ve talked about financial advice for your business, let’s talk about personal stuff.

Pay yourself first

Most business owners forget one very crucial thing when they put up their business. They forget to pay themselves. As a result, we see business owners who have no retirement savings or have a bad financial future overall. When you start your business, you should always pay yourself first. Well, after clearing out your financial obligations. This ensures that you have enough money for yourself and your family without having to dip into the business funds. This monthly income should be something that is easily justified.

Plan for retirement

You simply can’t work on your business forever. That’s a reality. That’s why it is always smart to keep a retirement account as early as possible. This is on top of having an emergency fund and health insurance coverage for you and your family. Your retirement fund can depend on what your idea of a “comfortable life” is and will be part of your retirement plan. For some people, their retirement savings account will cover everything from possible trips and vacations and medical bills in the future.

One secret to a successful financial life is to learn how to diversify one's portfolio

Diversify your portfolio

Even if your business is doing well, you should still try to diversify your source of income for financial success. Depending on your financial goals and money habits, you can have a wide investment portfolio that will ensure you have money even if one fails.

Live within your means

While the life of a rich businessman can be such a temptation, you should remember that this will not be the case well until your business is off the ground. This means that you should still follow a strict budget even if you see profits coming in. This is the secret to the financial success of some businessmen. For these people, earning millions does not mean spending millions as well.

Keep an emergency fund

Anything can happen in a heartbeat – be it good or bad. That is why it’s always a responsible financial decision to keep an emergency fund for such instances. An emergency fund is money you set aside for unexpected or large spending that may come up so that you don’t have to dip into business funds unexpectedly or be forced into taking on risky debt options. After all, the last thing you would want is to disrupt the growth of your business because you failed to save ahead of time.

Coming up and sticking to savings commitments is key in responsible financial planning

Invest in yourself

In order to become a better businessman, you need to keep improving. Use some of your earnings to further develop skills that will help you become more successful. This could include investing in courses, attending conferences, or self-education materials.

Track your expenses

Being able to monitor and control your spending is an important part of achieving financial goals. Keep track of what you’re spending each month and try to find ways to cut costs and save more money. Understand that the mantra is always “spend less than you make” so you’ll come out with a net positive at the end of the month.

Create a budget

Having an organised plan will allow you to stay on top of where your hard-earned money is going. Set realistic goals and make sure that you stick to them, otherwise progress towards financial freedom will be slow if nonexistent.

Borrow wisely

There are moments when borrowing money makes sense both on a financial and business standpoint. However, it should not be something that you should welcome openly. Using credit cards and making loans should be the last things you should be doing financially.

Wrap up

In order to run a successful business, it is essential to understand your company’s financial health and do everything possible to put beneficial routines in place. This will ensure your company is as successful and as profitable as it can be!

To put it simply, you need to know how to prioritise cash, plan for success, and reach out for help when you need it, whether it’s in the form of outsourcing work, implementing financial software, or simply asking for help.

With these above business and personal finance tips and tricks, we hope you are empowered as an entrepreneur and ready to harness the power of your newfound financial knowledge. Talk to our team today to get started!

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