Running a business is challenging, but keeping it profitable can be really daunting. Contrary to what most people think, money management is much more difficult than it seems, and it’s not limited to simply bookkeeping.
You’re probably aware that financial management is at the top of business growth as a business owner. However, you might fail to track your financial information properly or miss tax deductions, and it’s totally fine. As your primary focus is to bring your business to the next level, you have, without any doubt, many tasks to handle. And, understandably, if you’re not accounting trained, managing your finances may become a burden.
That’s one of the reasons companies could be losing money without their owners even realising. But don’t get discouraged. There are many ways to manage your business finances and push your business forward.
Here’s why businesses could lose money:
As we already mentioned, entrepreneurs can lose money due to the countless day-to-day tasks associated with running a business. But apart from that, there are various reasons why money can slip through your fingers:
- poorly trained employees: training is the key to a well-prepared, motivated team. If your workers are not adequately trained, this can directly affect your ongoing business. You should know that a business owner who invests in a rigorous trainer for their team doesn’t see it as a cost, but an investment, and so should you. A poorly trained staff is unproductive and unmotivated, resulting in a half-done job. Sometimes it’s not the workers’ fault for your financial losses – not being fully qualified for a specific job, they look for shortcuts to finish it, and in some cases don’t finish it at all.
- improper use of technology: technology makes it possible to automate your tasks. But what if it’s not used correctly? Sure, you may think that investing in the latest technology will increase productivity and efficiency in business operations, but it’s not always the case. Make sure that you use only devices and tools that serve your needs. Therefore, think carefully about what you need and buy technology accordingly.
- a few pounds spent on marketing: in this modern age, image is crucial, so if you’re not running a marketing campaign yet, it’s time to do so. Online marketing is a powerful tool in today’s digital world since the internet became part of everyone’s life. So, don’t hesitate to invest in an advertising campaign – it will undoubtedly attract clients and boost profits.
Build a budget that reflects your business goals
It’s of the utmost importance to set a budget when it comes to business running. Not only will it help you manage your purchases, but it can also lead to savings. By sticking to a budget, you’ll be able to rationalise what you can or cannot afford. Besides, you’ll be more realistic regarding your strategies for business growth in case you encounter financial problems on the way. It’s likely for an entrepreneur to experience money issues, especially when they don’t know how to create a business budget. If you’re in the same situation, consider updating the budget plan every month, taking a look at industry standards, and always factor in some slack. Don’t forget to have a cash reserve because, let’s face it, the unexpected can happen – additional surprise costs and unforeseen expenses are part of any business.
Consider using software for accounting
If you’re still using manual accounting to keep track of your finances, it’s time to reconsider your approach. Whether you run a large or small company, financial management is inevitable. Data flow in your company may overwhelm you and, as your business grows, there is even more information to keep evidence of. Besides, wage management can be a burden, especially if you run a company with a significant number of employees. All that with the addition of invoices, statutory payments, and transactions – it sounds daunting, doesn’t it?
Thanks to the advancements in technology, you can now manage your finances without much effort and cost. Accounting software can help you run both business operations and payroll. Plus, it’s a budget-friendly choice – you can save money by making an annual subscription to an accounting software that often comes with a substantial discount.
You may also spend valuable time managing taxes. Not only is it time-consuming, but also anxiety-inducing. Now more than ever, you should store your financial data in a digital format, not losing your mind every time the tax period is approaching. You can use Making Tax Digital (MTD) to submit Value-Added Tax (VAT) to Her Majesty’s Revenue and Customs (HMRC) and do it effectively.
Separate business and personal funds
If you tend to mix your business and personal funds, it’s time to change this habit because it will only lead to financial losses. If both individual and corporate finances are combined into a single bank account, you may lose track of them and start spending money for personal needs from funds dedicated to the company. Start with baby steps and consider opening a business bank account, but not before applying for an Employer Identification Number (EIN) – even if you run that business, you also have to get paid. Once you have the EIN, you can get a business credit card and pay yourself a salary. Remember that you have to keep track of every expense, be it personal or financial, so consider separating your receipts and keeping them.
Remember accounts receivable
When you make a loan, it’s easy to forget about these funds. After a couple of weeks, you may not remember that customers owe you business money, which is one reason why companies make losses. Consider noting down the customers in debt and the amount they owe you to record accounts receivable adequately. It may seem trivial, but keeping track of your pursued payments is crucial.
If some customers are late with the payment, you can send them invoices and late notices to assure you get your money back.
That being said, financial management is essential in every company, large or small. Fortunately, there are various ways to keep track of your finances, and the ones mentioned above are only the most popular.