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How to Manage Your Small Business Finances

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Financial management can be a challenge for many small business owners. 60 percent of small business owners lack confidence in their ability to manage the financial side of their business, with only 40 percent saying they feel “extremely” or “very” knowledgeable in accounting and finance, according to a Wasp Barcode Technologies report. Collections, cash flow and managing paperwork are three of the top financial concerns that give small business owners headaches. Fortunately, there are a few simple steps you can take to start getting your financial fundamentals into manageable shape.

Setting Financial Goals

One of the most fundamental steps you can take to start getting your company’s finances moving in the right direction is to set financial goals. This gives you concrete objectives to work toward, as well as a standard to measure your performance against to keep your company accountable. Three financial goals all companies should pursue are minimizing expenses, maximizing profits and maximizing market share, explains Investopedia. A best practice is to set financial goals in these areas when you start up your business and to review your progress and update your goals regularly. One way to do this is to supplement annual, quarterly and monthly reviews with weekly meetings with your key personnel on short-term financial highlights. This enables you to stay on top of any major revenue or expense changes happening in a particular month, while keeping your eye on the long-term picture. An accountant can assist you with this by providing you with reports summarizing your company’s financial state.

Cutting Expenses

Keeping expenses manageable is vital to running a sustainable business model. Nolo legal editor, Beth Laurence, explains that there are four key areas where one should look to cut expenses: discretionary spending, rent, capital costs and payroll.

When you’re strapped for cash, the first place you should look to cut expenses is discretionary spending, which includes funds for things such as hiring new employees, expanding your office space, upgrading your equipment or launching a new marketing campaign. Unless these types of expenditures are necessary to run your operations and stay competitive, save them for when you’re profitable enough to have a cash surplus.

If your rent is too high, your main options are to renegotiate a new lease or move. In today’s digital world, one option may be to shift some of your operations to a virtual office space rather than renting a full office.

To lower capital equipment costs, look into options such as leasing or using on-demand services. For instance, you can significantly lower your IT costs by using cloud-based infrastructure services instead of buying on-site equipment. Also don’t be afraid to ask your suppliers if they’re willing to give you a discount.

To reduce payroll costs, initial measures you can take are reducing perks and benefits, lowering your own salary and that of your highest-paid employees and reducing the hours of the work week. More drastic measures include laying off employees and outsourcing. Hiring a Virtual Assistant, versus staffing an in-house employee, can also save you money.

Other cost-cutting strategies you can pursue include using a less expensive credit card processing service, cutting business travel and using more efficient marketing methods while cutting non-performing advertising campaigns.

Diversifying Income Streams

Another major financial goal of your business should be to increase your revenue. One way to do this is optimizing your sales funnel. Start paying attention to how many leads you generate per month, your conversion rate per lead and how much revenue you average per sale. Then work on improving these numbers.

Another way to increase your revenue or raise capital for your business is by diversifying your income streams. On-demand service gig platforms such as TaskRabbit and Stocksy and direct selling platforms such as Amway illustrate some of the ways you can generate new streams of income.

Automating Your Financial Management

Managing your finances is easier the more you can automate. Today’s cloud-based apps let you greatly reduce your paperwork by enabling you to automate most of your key financial functions. For instance, QuickBooks Online lets you integrate your accounting software with automated transaction entry, payroll and expense reporting to minimize the amount of bookkeeping you need to do.

If these tips seem overwhelming and you’re unsure of where to begin, Contemporary Virtual Assistance can help shed some light on what would work best to streamline your business and finances. Contact us today!

Posted on September 29th, 2016 by Rachel Braam, Office Manager

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