Whether you’re an entrepreneur who is new on the scene or have been running your own business for a while, you could probably stand to benefit from a crash course in financial health. Managing your expenses and keeping track of your finances can be complicated, so we’ve compiled a list of 5 effective and useful tips to guide you through your money management process.
The importance of having your finances in order
Indeed, keeping track of your finances is just good advice in general. In the particular case of entrepreneurs and self-employed professionals, the most significant step towards becoming a successful business owner is to know how to manage your finances. Put simply, if you have no money, you have no business.
You don’t necessarily need to be a financial expert to know how to manage your expenses as a business owner. Although cash flow management is one of the most common challenges faced by entrepreneurs, financial health doesn’t have to be an unachievable feat.
The pillars of financial planning
This is a good place to start since planning is so crucial to achieving financial health and succeeding in your entrepreneurial project. Strategic management is likely to be your best bet when it comes to financial success.
We’ve compiled 5 essential tips for good financial planning to help you achieve financial success as an entrepreneur.
Track and record your expenses consistently
This is probably the most fundamental step you could take to properly manage your expenses as a self-employed professional. By keeping track of your expenses and keeping good records consistently, you can make sure you start your financial planning strategy on good footing.
Arguably the best practice in financial management, recordkeeping may seem tedious at first but it’s worth it. The most effective way to make it less of a chore is to keep all your information in one place and be serious about staying organised.
Consider inputting your financial records in a Google Sheets document and go over it at the end of every day. This way, you’ll be able to spend a little extra time every day to make sure your finances are in order and you’re not leaving anything out. By keeping all your information in one place, making it a habit to update them, and maintaining this habit consistently, tracking your expenses and keeping your records won’t seem like such a tedious task.
Find ways to increase your revenues
The motto of successful entrepreneurs is “save when you can”, or at least it should be. As a general rule, your business benefits from you finding ways to increase your revenues and lower your expenses.
Learning new ways to increase your revenues and lower your expenses can make a great impact on your business. (Source: QDT)
There are many different methods you could consider implementing to reduce your expenses when it comes to your company’s daily practices and operations. For example:
- Reduce any production waste and unnecessary cost
- Avoid taking on debt whenever you can
- Lower your supply expenses, especially if you’re just starting in your industry: do your research and find vendors that offer competitive prices
- Cut material costs as much as possible by optimising the resources you already have
- Grow your employers’ skills and promote internal promotion as opposed to hiring new employees regularly
- Find innovative, novel ways to brand your products and services in collaboration with your creative team.
Manage your business credit
It’s crucial to be sensible of your credit when you own and run a business. Financing is one of your top priorities when you’re trying to get your business off the ground, and having good credit is often a crucial part of finding good financing options, namely loans and grants.
In the UK, a score of 881-960 is considered indicative of good credit, and a score of 961-999 is considered indicative of excellent credit. Beyond finding good financing for your business, a good credit score may also help you get equipment and materials at a lower cost since suppliers often look at a business’s credit score to determine whether it will be a reliable partner.
The number one way of building good credit is keeping up with all your payments and avoiding any delays. You should also use your company’s line of credit to make purchases that make sense for your business: regularly meet payroll needs and keep a sufficient supply stock at all times. Making purchases that are exclusively relevant to your business also means separating business from personal expenses.
Keep your business and personal expenses separate
When you withdraw from your business line of credit to fulfil personal expenditures, you’re putting your business at risk of encountering financial difficulties down the road. As a general rule, you should keep your business and personal finances and records separate at all times.
Ideally, you would be as serious about your personal recordkeeping as you are about your business recordkeeping. Managing your business and personal finances and tracking your expenses in both areas will undoubtedly benefit your overall financial well-being.
Create an emergency fund
In the first few months or even years of your company’s course, while you’re focusing on increasing growth and finding ways to take off and make a name for your company, reaching your financial goals can be quite challenging. It’s important to be diligent about strategic planning and keep an emergency fund as you can find yourself in an unexpected situation at any point.
In general, your emergency fund should be able to cover at least three months’ worth of company expenses. Depending on the specific needs of your company, you can tailor this amount as you see fit.
Financial planning and good financial management, both personal and business, represent an essential skill set for any entrepreneur to have in their toolkit. The most significant thing you can do to contribute meaningfully to your long-term financial well-being is to get educated. Indeed, you don’t need to be an expert in financial management to know how to keep your business in top shape, but you can educate yourself on basic methods of financial planning and learn new ways to diversify your income, lower your expenses, and build good credit history.
On welinkaccountants.co.uk, you can find a list of qualified accountants and bookkeepers near you that can periodically advise you or consult with you on the subject of tracking your expenses and keeping accurate records. This will let you focus on your business operations, by ensuring you’re well on your way to financial success.