Cash is king, cash-flow kills and accounting is a daunting task. All of these statements are true and all of them are popular among many small business owners. So it is a good idea to focus on what is truly important when it comes to managing small business finances.
- You can’t manage what you don’t track – budgeting is a crucial step in small business finance.
Small Business Development Centers are teaming with counselors who focus on cash-flow worksheets that project monthly budgets for small business owners. No matter what challenge businesses face, it is a good idea to start with the numbers. A budget can help identify shortcomings in cash, resource management and planning. Budgeting and planning cash-flow can help you sleep at night and allow you insight into future plans and major challenges. Not many (if any) businesses can survive by winging-it when it comes to finances. Profit margins just aren’t there to allow this to happen in today’s marketplace.
- Be conservative with your projections. Guess your expenses high and your revenues low and bank the results.
Most start-up businesses have no idea where revenues will go, nor do they have a firm idea of their expenses. By forecasting the “worst-case-scenario,” a business owner may be able to reap the benefits of a sales windfall or lower expenses. When this happens, dump the “excess” cash into an escrow or savings account. This will position the company for growth and protect against the times when the projections are wrong in a bad way.
- Keep an eye on costs or they will sneak up on you.
Small business owners too often get blindsided by increased costs. The lease goes up or the raw materials become harder to find or fuel costs rise and the list goes on. Normally, when an owner complains of a surprise increase in the cost of doing business, it’s because they have become too focused on their product alone and not focused enough on the events and news within their industry. This is not to say focusing on your product is bad, it’s not but, if you don’t come up for air every now and then, you are going to miss a development in the world or your industry that could dramatically impact your bottom line.
- Costs are not the only targets to watch. Sales forecasting is also a good practice.
None of us have a crystal ball. However, if we are successful in our business for any period of time, we should be able to forecast monthly sales for a reasonable period. Seasonal buying patterns and industry trends are good indicators of possible future sales performance. A wise small business owner will know how many potential clients are in the sales pipeline at any given time and what the likelihood of closing each of these sales will be. Knowing the numbers behind your sales funnel can dramatically improve your ability to manage cash-flow. (No idea what a sales pipeline or funnel is? Call the SBDC!)
- The best time to ask for money is when you don’t need it.
You’ve probably heard that saying before but it is true. If you are budgeting properly and putting back funds for a rainy day, you should be on a solid foundation to ask for a line of credit. Your business may not have an immediate need for such a luxury but you may be surprised how quickly your solid foundation may erode and you are left scrambling to make ends meet. Or, even better, an opportunity may arise requiring additional investment and that little-used line of credit will come in handy.
As a small business owner, it isn’t always about the money but, if you don’t manage your finances properly, you will most likely end up a statistic and be unable to pay your bills or improve your community. As always, if you need assistance with financial management or any other facet of owning a small business, seek out your nearest Small Business Development Center. A qualified fellow entrepreneur is waiting to give you a hand.