Smart Money Management: Balance the Books Without Breaking the Bank

Running a small business is no walk in the park. Managing employees, ordering supplies, overseeing the schedule, marketing, balancing the books—it all feels like a never-ending list! It’s no wonder that about half of all small business owners report feeling burnt out at times.

Keeping track of finances can be one of the most stressful parts of running your business, especially if you haven’t had any formal training. It’s also one reason why so many companies find themselves in a cash crunch, making it difficult to cover costs. Even when business is going great, there are still financial hurdles that can pop up and impact your company’s success. 

These can include:

  • Uneven cashflow cycles
  • Changing business costs
  • Late tax filings and payments

Like most things, if you leave a problem too long, it will fester and balloon into a serious issue. 

Luckily, there are a number of simple steps you can take to keep your finances in check. Let’s take a closer look at some best practices, cost-cutting ideas, and financial tools that will help you stay on top of your finances. 

Best money management practices for success

Managing your business finances doesn’t have to be complicated or difficult. If you take the time to do some prep work and stay on top of tracking income and expenses, you’ll likely find that managing your finances is easier than you realized. Here are four best practices that, when followed, can keep you on track. 

Create a realistic budget: A well-structured budget is the foundation of financial stability. It can both be a roadmap and a guardrail to help you understand where you are financially. 

Start by listing out all your income streams, whether that’s sales, service fees, or anything else that brings in revenue. Then categorize your expenses including rent, payroll, inventory, marketing, utilities, equipment costs, and beyond. Keep your numbers realistic and monitor your budget regularly for tweaks and adjustments. 

Track income and expenses diligently: Take the time to record and categorize every transaction—both income and expenses. Luckily, there are a number of digital tools available that can simplify this process so that it’s not so tedious or time consuming (more on that below). 

Forecast cash flow monthly/quarterlyIt’s not enough to look retrospectively at your finances. You need to look into the future so that you don’t find yourself in a difficult situation later on. 

That means doing monthly and quarterly forecasting, projecting out how much income and expenses you expect to have. That should be relatively easy if you are a service business with long-term contracts with set start and end dates. But if you operate a consumer-facing business, like a restaurant, you may need more long-term data to accurately make any forecasts. Be sure to take into account things like seasonality, holidays that may impact operations, and potential fluctuations in market conditions.

Additionally, make sure you’re also forecasting expenses and comparing that with your forecasted income—include expenses like payroll, materials costs, and subscriptions, all of which should be highly predictable. This will help you keep your finances steady and get an idea of potential profits in advance. 

Cost-cutting tips to help maximize your profits

Growing revenue is never a bad thing, but in order to build a truly financially healthy business, you need to look for opportunities to cut costs. After all, what good is revenue growth if expenses grow faster? 

Here are four ways you can look for cost savings that will help you grow your bottom line. 

  1. Audit recurring costs:  Regularly review your recurring expenses to identify areas where you can cut back. Scrutinize subscriptions, software licenses, utilities, and other ongoing costs. Consider renegotiating contracts or switching to more cost-effective vendors or products. By staying vigilant, you can eliminate unnecessary expenses and optimize your budget. 
  2. Incentivize early payments:  Incentivizing early payments can significantly benefit your business by improving cash flow, strengthening customer relationships, and enhancing overall financial health. The most common way to do this is to offer a discount to customers who pay their invoices early. It can be particularly helpful to offer them to clients with whom you have a long-standing relationship as a means of increasing loyalty. Strategically implementing discounts can lead to optimized financial operations and foster growth.
  3. Barter for services:  Bartering involves exchanging goods or services without using money. Consider trading your business offerings with other businesses. For example, if you’re a web designer, you could offer your services to a local restaurant in exchange for catering at your company event. Bartering helps you acquire what you need without cash outflows. Just keep in mind that there is still a cost associated with bartering, usually in terms of labor, so try to keep an eye on that to ensure bartered services and goods aren’t more valuable than what you’re getting. 
  4. Reduce tax liabilities:  There are a number of ways to reduce a business’s tax liabilities. This can include maximizing deductible business expenses such as office supplies, travel costs, and professional fees. You may also want to consider strategically timing strategically making capital expenditures, such as investing in new equipment, in order to take advantage of depreciation tax benefits. Another route is to invest in retirement tax deferred accounts. Lastly, look for ways to earn tax credits, such as investments in energy efficiency. 

Just remember that it’s always best to consult with a professional tax advisor who can properly guide you through the tax code. 

Tools & tech for stress-free accounting

There’s an app for that! No seriously, there are plenty of apps out there to help you manage your finances. Some that are even free or very low cost! 

The first step is to find affordable accounting/invoicing software that can be your homebase or single source of truth. Some features you want to look for include (but are not limited to):

  • Automatically importing expenses and income from your bank
  • The ability to offer credit card payments and other payment options on your invoices
  • Integration with other software systems you use, such as time tracking (especially important if you bill by the hour), inventory management, and project management. 
  • Automated billing or recurring invoices
  • A robust mobile app that offers lets you easily track expenses and manage your finances on the fly

Lastly, one of the toughest areas where you may need more help is payroll. Instead of doing all the calculations yourself—or paying an accountant to do it for you—use Homebase payroll software for accurate and timely payment to employees. It simplifies the entire process by automatically calculating tax deductions, paid time off, unpaid time off, pre-tax deductions for healthcare, and more. 

Additionally, payroll software often automates tax calculations and filings, eliminating the significant administrative burden of doing it yourself. Ideally, payroll software will integrate with your finance software, simplifying financial reporting, expense tracking, deductions, and overall payroll costs. 

Ideally, whatever payroll software you choose will save you both time and money, freeing up resources for more important tasks. 

Making the most of your money

Your business’s financial health is the foundation for your success. When you have a handle on your finances and manage them effectively, your company will flourish.

The good news is that by being diligent, investing in software, and actively seeking opportunities to save money, business will remain firm. Whether you’re a budding entrepreneur or an established business owner, these practices pave the way for sustainable growth and prosperity.

Small business money management FAQs

What is the best accounting software for small businesses?

This largely depends on the type of business you are and your budget. There’s no one-size fits all accounting software. Instead, look for features that will make managing your finances easier, such as integrating with your bank and other business software, automated invoicing and payroll features, and a robust mobile app. 

How can I forecast cash flow accurately?

To accurately forecast cash flow, it’s essential to understand your cash flow cycle. Create a detailed report that captures cash inflows and outflows to get a sense of your monthly cash flow. Regularly monitor and adjust your projections based on actual data.

What expenses are most often overlooked by small businesses?

While every business is a little different, the most overlooked common small business expenses include legal and incorporation costs, employee benefits expenses, insurance expenses, processing fees, and subscriptions.

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