Tracking finances is crucial for entrepreneurs concerned about cash flow, one of the leading money issues plaguing small businesses in the US. By knowing where your money goes and how much your business is making, you can make informed decisions and set new goals for your company.
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To help in this effort, we outline money-tracking strategies to help improve your company’s profitability and cash flow. After reading, you will have an accurate picture of your company’s finances and develop better sales methodologies.
Financial Management Today: What Entrepreneurs Need To Know
Before going over the strategies, let us first discuss why financial management is crucial for modern businesses. Monitoring expenses is only a fraction of what money management is about. The process involves various strategies and techniques to determine the use of an individual or an organization’s capital.
Improper management of finances can impact your company’s cash flow. According to a survey from invoicing software provider Skynova, running out of cash is one of the most common reasons startups fail. Even the most successful firms can find themselves on the brink of bankruptcy if their funds are tied up in unpaid invoices, making them struggle to pay their bills.
One of the most challenging times for cash flow is in the early days of a new company. While setting up the business, you can be overwhelmed by expenses with no clients or customers providing an income stream.
That is why it is crucial to consider your cash flow situation from the beginning and ensure you have a temporary source of funds when you decide to create your own business. You can use your savings to keep your business afloat. This approach allows you to continue growing your business while waiting for incoming revenue.
Monitoring your finances is particularly crucial for seasonal businesses. You must track your cash flow carefully if you have a significant fluctuation of customers at different times of the year.
Fortunately, intuitive planning and budgeting can help you reduce inessential business expenditures. Through strategic finance management, you can ensure that you are getting the most out of your money while preventing overspending. This approach can also lessen the risk of running out of money and help you reach your financial goals for your business.
Money-Tracking Strategies for Business Owners
Running your own company involves countless time-consuming and unavoidable tasks, like bookkeeping, tax preparations, and accounting processes. Although these processes might be frustrating, they are crucial to keeping your business compliant and generating valuable data that can help inform future business tactics.
Most businesses use cloud accounting software or finance tracker tools to make these tasks more manageable. If you want to improve how you monitor your expenses, you can also try the following simple yet effective strategies.
Prioritize key financial metrics
When monitoring your finances, prioritize metrics that indicate how well you are achieving your business goals. The most experienced entrepreneurs focus on metrics such as profit, expenses, cash flow, revenue, and return on investment (ROI).
Accounting software, dashboards, and spreadsheets can help you record and analyze these critical financial metrics. Moreover, you can compare the data you record to competitors, industry benchmarks, or previous results to assess business performance.
Categorize your budget
It will be easier to monitor your finances if you have a systematic perspective of your budget. Consider dividing your budget based on the following factors:
- Startup business expenses: For new businesses, consider the initial costs when making a budget. These include legal, branding, licensing, permits, and business registration fees.
- Operating costs: These costs include regular expenses you must pay while running your business. Rent, utilities, marketing, insurance, and logistics payments are examples of these costs.
- Savings or reinvestment: As an entrepreneur, you must have savings to protect the future cash flow of your business. Set aside a fraction of your profits for future expansion, upgrades, or new business opportunities. This financial investment can help you stay ahead of your competitors and grow.
- Flexible costs: Some business costs can fluctuate based on changes in your company. These costs might include client meetings, travel expenses, or seasonal ad campaigns. You must allocate funds for these expenses to take advantage of future growth opportunities.
- Emergencies: Saving for unexpected expenses or emergencies is crucial for success. By having an emergency fund, you can overcome financial challenges without disrupting your operations.
Follow an effective billing approach
One of the most challenging aspects of running a business is handling clients who make late payments. Adequate cash flow is essential for paying daily expenses, and late client payments can disrupt operations.
Developing and following an effective billing system is one way to get your clients or customers to pay on time. For example, you can incentivize clients to pay earlier by offering a two percent discount if they pay invoices 10 days after their transaction. This way, you encourage clients to pay early, attract new customers through discounts, and promote positive cash flow.
Review your financial statements
Consistently reviewing your financial statements is crucial for monitoring your company’s economic success. These documents record all your activities and positions related to your finances.
For example, an income statement records revenue, expenses, and profit. Meanwhile, a balance sheet shows liabilities, assets, and equity. A cash flow statement notes how much cash you earned and spent in operating, investing, and financing activities.
Frequent reviews of these financial statements can give you a clear picture of your company’s profitability, solvency, liquidity, and efficiency. They can also help you determine any potential issues, opportunities, or trends that can impact your business.
Automate routine expenses
Automation solutions can do wonders for your business, especially if you want to improve expense monitoring efforts. To lessen the burden on your team, you can automate routine payments.
For example, you can automate payments for certain operating costs, such as your internet bill, rent, and subscriptions. You can also automatically set up payments for recurring vendors and employee direct deposits. This way, you and your employees can have more time to focus on crucial tasks.
Seek feedback and advice
Remember that tracking your finances is not only about numbers and data. It’s also about learning from your mistakes, experiences, and achievements. By seeking advice and feedback from various sources, you gain valuable insight that can help improve your financial strategies.
For example, ask for your customers’ opinions, testimonials, suggestions, or referrals to improve how you receive payments. You could also involve your team in financial planning, monitoring, and reviewing to optimize existing operations, processes, and systems.
Entrepreneurs can also look for mentors with the expertise and experience who can help them overcome challenges, provide resources, and find new opportunities.
Manage Your Finances Better and Improve Profitability
Expense tracking can be an effective process for managing your spending. Regularly reviewing your expenses lets you focus on your business goals and identify any excess expenditures. The information you can gain through expense tracking can help you avoid costly mistakes and successfully pivot when needed.
