Often, people associate money management with quick math skills and making ends meet. While it’s partially true, many factors go into having good financial skills. Are you earning more than enough from your business but still finding yourself short on cash every month? When this happens, it’s no longer about having enough money- it’s about being more responsible with it.
Financial responsibility is an important skill to have, and it makes life easier. From evaluating your monthly expenses to budgeting, here are a few tips to help you gain control of your finances and make the right decisions.
Evaluate Your Situation
Before you start planning your budget, it’s important to assess your current financial situation. You have to be aware of exactly how much you’re spending and whether you can decrease or completely remove any unnecessary expense. For instance, if you’re paying for a subscription service like Slack but make barely enough money to pay all your employees on time, you might want to hold off on your subscription. Unless your expenses are critical for your business, it might be best to keep any additional expenses to a minimum.
Monitor your monthly costs by adding up your rent, utilities, payroll, and other expenses. This also includes extra expenses like that Spotify plan you purchased to play non-stop music at your store. Also, remember to keep track of how much you’re earning from your business.
Whenever you purchase or pay for something, remember to keep the receipt so you can list it down later. It’s easy to use your debit or credit cards to cover small expenses, but if you don’t take note of them, you won’t realize how much you’re spending every month.
Consider Your Financial Goals
Now that you’re aware of your current monthly expenses, it’s time to sit down and think about your business financial goals. These goals will help you figure out how to plan your budget in a way that will help you reach them. You may want to save up to give your hard-working employees a raise or add some much-needed equipment to make your business more efficient. Make a list of short and long-term goals you’d like to achieve with your money, and arrange them by priority. Just remember that long-term goals are goals that you can work towards while trying to achieve your short-term goals in the process.
It’s also important to know how to differentiate between long and short-term goals. Long-term goals include growing your wealth or expanding your business, while short-term goals include having better control of cash flow or setting an achievable revenue goal.
Set Up a Budget
Once you’ve understood your financial situation and planned out your financial goals, the next step is to work out your budget. If you find yourself spending more than your income, it’s the perfect time to take a look at what you can do to cut costs. Are you spending too much money on social media ads that don’t get enough engagement? Consider decreasing your budget on ads and invest your time in working on the ads themselves. Setting up your budget also helps you to keep track of your expenses. You can do this by jotting down your expenses at the end of every day and writing them down on your accounting books. If you’re not a fan of writing each purchase down, you can use expense-tracking apps like Spendee to help you note your expenses on the go.
If you don’t think you have the time to write down all your monthly expenses or manage your budget, you can ask for help. Financial advisors and accountancy services can help you keep your expenses in check and help you make the right financial decisions.
Prepare a Cash Reserve
Saving money is difficult, but you never know when you might need money for an emergency. This is where your cash reserve comes in handy. Set aside a part of your income every month and let that portion go into your cash reserve. Ideally, it’s best to have enough in your emergency fund to last you at least 3 to 6 months of operating expenses. To avoid accidentally using these funds, consider placing them into a business savings account. Having a separate personal and business account will help you save on time and shields your personal assets.
Have Good Business Credit
Credit cards are a dangerous drug that many people don’t take seriously. Using your credit responsibly is an important part of both business and personal financial responsibility. Your credit score affects your ability to make big financial decisions, such as investing in real estate or taking out a loan. If your credit score isn’t great, getting any loan approved will be difficult. Build your credit score by paying your bills on time, not going over your credit card limit, and keeping unused credit cards open. Remember to keep your balances low, ideally around 30%, to maintain your credit score. This is called the 30% credit utilization rule.
Running a business is difficult enough already, but managing finances is one of the keys to a successful business. With a little effort and time management, you’ll be on the road to financial responsibility and a more efficient business.