How to Manage Business Finances Effectively

In order to manage business finances effectively you need to use bookkeeping and budgeting software solutions, have an expert on call, and learn quite a bit about the subject yourself. An entrepreneur of today has a lot of helpful resources available, so you can keep your small business afloat even without specialized financial education. As long as you use the right tools and remain vigilant with tracking your finances, you’ll do well. You’ll do even better if you use some efficient money saving techniques.

Manage Business Finances Step 1: Get Educated

You don’t have to go to college to learn about managing business finances, but you have to understand the basics of the subject. Best information sources for entrepreneurs are books, online courses, and specialized websites, like:

New Venture Finance: Startup Funding for Entrepreneurs (Coursera online course)
Finance and Accounting for Small Business & Entrepreneurs (Udemy online course)
Finance and Capital Markets (Khan Academy courses on accounting and taxes)
Edwin Burton’s book Accounting and Finance for Your Small Business
com (legal and financial advice)

Do not forget to check your local governmental websites on finances. They will contain information on the legal requirements pertaining to managing business finances. They also might suggest helpful programs and advice. In the US such websites are SEC.gov and SBA.gov. You can find similar resources in your country using simple Google search.

Manage Business Finances Step 2: Separate Business and Personal Accounts

Keeping your personal and business finances separate is not only better for managing them. This will protect you in case of any legal trouble as well as make your taxes easier to organize. The most basic things to do is to open a separate business account and get a suitable credit card for it. Many banks and credit companies have special offers for small businesses that can be particularly beneficial, so research the available options thoroughly.

When managing business finances and personal money separately, you need to keep control of yourself in all situations and to NOT MIX THEM. Never draw on one to help balance out the other as this will wreak havoc on your money management strategy as a whole.

As a business owner you also need to pay yourself salary. This is often a complex matter for beginner entrepreneurs as they don’t know how to calculate it properly and might feel tempted to take a little more or less than they should. Study this guide on how to set your salary as a small business owner to get some ideas and consult a financial advisor to draw up the best plan for you.

Manage Business Finances Step 3: Develop a Budget

You have to be aware of all your business’s funds, fixed expenses, and debts at all times. Creating a budget is key to that and something you must do before yo9u even launch a business. In fact, it’s a mandatory part of any business plan and needed if you want to apply for financing.

The easiest way to create and manage a small business budget is by using specialized software, like:

These solutions are quite advanced and designed specifically for enterprise budgeting and financial management.

Manage Business Finances Step 4: Get Bookkeeping Software

Cloud-based accounting solutions eliminate the need to hire an accountant for small business. This software is easy to use and it comes with simple instructions and a customer support system ready to help. Best solutions for small managing small business finances and books today are:

QuickBooks (best overall for any type of business, mobile version included)
Zoho Books (simple solution for very small businesses and beginners)
Xero (best for MacOS)
Wave (best of the free solutions)

Remember, no matter how simple small business finances management software is, it requires extensive study. You should spend a few days exploring all available features so you learn how to use the solution to the maximum benefit for your company. Contact the customer support service and study various forums and Q&A pages for the software of your choice to learn all the best tricks.

Manage Business Finances Step 5: Find a Financial Advisor

Finacial advisor consultating a woman — Image Source

Even if you don’t hire an accountant or tax professional, you’ll need to seek financial counseling from a pro. This will provide you with a chance to make sure that you are using all software listed above in the most efficient way. A financial professional will also be able to draw up contracts, payment agreements, and other financial documentation your business needs. Be sure to consult them on the matter of what kind of papers you need exactly as a financial expert might have some suggestions.

You don’t have to use a financial advisor’s services all the time. But do this in the beginning to fine-tune your finance management scheme. Revisit the expert occasionally to learn about any new solutions and techniques that can help improve your business.

Look for local financial counselors with experience and certifications as finance management specifics are greatly affected by legislation and even cultural peculiarities.

Manage Business Finances Step 6: Save Money

Throwing money in piggy bank — Image Source

The basics of saving money lie in understanding the difference between fixed and variable costs and deciding where it will be most prudent to cut your expenses.

Fixed Business Costs:

Rent
Payroll
Depreciation on equipment
Insurance
Utilities
Taxes
Interest rates

Fixed costs are the ones that you have to pay regardless of whether you manage to sell your products. If you choose to cut down these costs, consider your options extremely well. For example, moving to a smaller office in a worse location can reduce your number of customers.

Some fixed costs, like depreciation, cannot be affected by anything you do. So you have to learn how to work around them. Getting professional advice will be best.

Variable Business Costs

Piece rate labor
Materials costs
Delivery and shipping
Sales commissions
Wages and performance bonuses

Variable costs are the ones that change depending on the volume of production and overall business progress. When you manage business finances, this part of your budget will be most flexible. However, that’s what makes managing it so tricky as you need to predict these costs accurately to plan your budget and then find best ways to cut them without lowering the quality of your products or upsetting your employees.

Remember: even minimal positive changes can help your financial situation long-term.

Manage Business Finances Step 7: Monitor, Analyze, Improve

Managing business finances is an ongoing process that requires careful control and regular reassessment. The software solutions listed above will do the monitoring job for you and provide you with diagrams and graphs that will show the progress of your expenses, income, payments, etc.

You need to keep an eye on those and search for ways to improve your financial management strategy as a whole. Set up reminders and alerts that will keep you informed of any relevant changes. You also should review your financial records every month and make adjustments based on the new data.