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7 Tips on Finance Management for Small Businesses and Startups

7 Tips on Finance Management for Small Businesses and Startups

Get off to a great start with well-executed accounting & finance functions

While starting a new business is an exciting endeavor, it is also quite risky, especially if you dive in headfirst without preparation. Among the many challenges startups and small businesses face, accounting & financial functions remain at the top of the list.

Many new business owners are financially illiterate, or at the very least, have little experience in managing the accounting & finance functions of their company. Venturing into business without the ability to plan for financial management may result in harmful habits that can sink your business before it even has a chance to sail.

So, how can small businesses and startups manage their accounting and finance functions?

Startup & Small Business Tips

Success and stability are two things every business owner wants for their company. The way you create and assess your financial statements and plan for the future is critical to achieving both. Here are some ways you can manage your finances well while utilizing accounting & finance functions efficiently and effectively.


1. Assess your financial literacy and educate yourself.

Education plays a key role in effective money management. While you can leave all the heavy financial lifting to an outsourced bookkeeper or accountant, being proactive in managing your funds can do wonders for you and your business.

Being a business owner does not require you to be a business accounting expert. However, arming yourself with the necessary knowledge will save you time, effort, and money. The more you understand your finances and cash flow, the smarter money management decisions you can make and the better your financial habits will be. There are plenty of resources and tools that you can use to educate yourself and improve your financial literacy.

2. Pay yourself accordingly.

At the beginning of your business, it’s understandable that you’ll want to invest every penny into growth opportunities. That’s not wrong! Setting aside funds and investing in the future adds value to your company, attracts driven employees, and is generally an excellent financial move.

However, financial experts also advise SMB owners to pay themselves as well as they pay their employees; they are, after all, still a part of the business. It’s crucial that your personal financial health is in good shape, especially if your business doesn’t work out.

3. Take out loans responsibly

Small businesses have financing options available to them, including loans. However, many SMB owners consider borrowing money as dangerously expensive and risky, overlooking the benefits it offers. For one, taking out a loan allows you to increase your working capital, boost cash flow, purchase new equipment and inventory, and expand your operations.

Relying on your capital alone may have more consequences and risks than taking out a commercial loan.

4. Maintain good business credit.

It’s also vital to note that you should only seek funding or take out loans with interest rates you can afford. SMB owners should pay off their debt funding as soon as possible. Otherwise, their business credit will take a hit. Poor credit will make it difficult for you to accomplish certain things, such as buying commercial real estate or taking out more loans.

5. Manage your cash flow.

Managing your cash flow allows your daily operations to run at a healthy level. A positive cash flow means that you make more money than you spend, and you will want to maintain that rhythm by cost- and debt-cutting, inventory adjustment, monitoring your books, paying your bills on time, and sending out invoices right away.

Speaking of invoices, many SMB owners have dealt with difficult clients who are consistently and chronically late with their invoices and payments. Come up with a creative billing strategy instead of repeatedly badgering them on the phone. One way we help our clients manage their cash flow is by utilizing a cash flow forecasting tool that assists not only forecasting, but also with scenario planning and chasing debtors.

6. Plan ahead and make financial forecasts.

Being short-sighted will put you behind the competition. Startups and small businesses need to use the information they have to plan, which is why it’s crucial to monitor your books and review your expenditures and return-on-investment (ROI) for future reference and comparison.

Reports of your past and current financial conditions have a significant influence on your business’s future profitability. Financial forecasting provides the groundwork for establishing feasible goals for your company so you can make accurate, informed decisions about what you need to do or change for your business to succeed. For a business to succeed, it’s important to utilize finance functions such as creating financial statements, position planning, budgeting, and forecasting.

7. Hire professionals.

Hiring financial experts like accountants, financial advisors, and bookkeepers is one of the best and most reliable investments you can make when it comes to managing your funds and improving your cash flow.

Final Thoughts on Managing Small Business Finances

Startups and small businesses are vulnerable to plenty of financial risks at the outset. Utilizing accounting & finance functions to create and understand financial statements for budgeting and forecasting is key to running a business. Owners should take the time to understand how cash moves in and out to develop healthy financial habits for their business.

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