Managing your Small Business Finances

Business Insights
16/08/2017

Among the major challenges facing the new business owner, money concerns tend to top the list.


There are a few key strategies you can adopt in the day-to-day management of your business finances to be more effective.


For a start, educate yourself in the basics of business accounting. 

Take an introductory accounting course online or at your local college if you need to, to learn how cash moves in and out of your small business. The more you understand your business finances and cash flow, the better prepared you’ll be to make smart money management decisions.


Keep your business and personal finances separate. 

There are many reasons not to mix your business and personal accounts, including tax issues, personal liability, and jumbled accounting records, just to name a few. 

When things get tight, resist the urge to secure your business finances with personal funds because it will surely create a mess you will have to deal with later on.

The best way to maintain clear separation of your expenses is to set a personal budget and a business budget. 

Adhere to them strictly and separately so that credit cards and loans for your business don’t get used for your personal finances and vice versa.

Your bookkeeper and accountant will thank you for not muddying the money waters when it comes time to manage your books and pay your taxes.


If you are new to managing a small business, it is extremely important to calculate how much money you need to live on and withdraw only that money from your business, and to reinvest any surplus into the business. 

If things are going well it can be tempting to splurge on an expensive holiday or other major indulgence, but resist; wait until your business is more established.


Be cautious with your business expenditure. 

Can you really afford that glitzy office? Save money in the early days by buying furniture and major equipment second hand, and go green to save money on utilities.


In a young small business, payroll forms a major element of your costs. 

When things get busy it can be tempting to hire a new staff member. 

However, make sure that it is absolutely necessary first. Never hire staff until you absolutely need them. Always stretch out existing staff first and ensure that all employees are working to their full potential.


When dealing with outside contractors or vendors, such as delivery services, caterers, or electricians, do not be afraid to negotiate terms. 

Use contractors that will allow you to pay up to thirty days after the receipt of their services as opposed to paying on the spot. This grace period allows you to manage your money better and place your bills in order of priority.


Pay all accounts promptly to avoid racking up payment penalties. 

Don’t forget to examine purchase terms like late payment penalties and grace periods when making a decision. Sometimes being given an extra 30 days to pay can save you more than a 5% discount off the top.


Establish clear trading terms. 

Strike the best deals and payment terms that you can. Even small savings add up surprisingly quickly. 

Include a deliver-by date, with penalties and the option to return the goods for failure to meet your deadline - particularly important in the fashion trade or with seasonal goods. Who wants a huge delivery of Christmas crackers half way through February?

Once you have all the systems in place for the most economical ways to manage your business finances, make sure you get in the monies owed to your business, after all you are in business to earn money.


Insist on prompt settlement of your invoices, and establish clear credit terms. 

Set up good credit control systems from the start, with a system of regular reminders and chase up non-payers. 

Many new business owners make the mistake of not chasing outstanding invoices for fear of alienating a “good” customer. But, and it cannot be said often enough, the only truly “good” customer is one that pays their bills on time.

In the case of a really reluctant payer you may consider using the courts, but some times a letter threatening court action may bring even the worst offenders round to paying their bills. Before you go to such lengths consider if the debt is worth it.


Credit insurance.

That huge order may be very exciting; you may even be prepared to take on extra staff and equipment to fulfil it, but what if the clients are poor payers? 

If fulfilling the order involves you in major expenditure, take out credit insurance to protect your business.


If you need to secure additional finance, take a staged approach. 

If you anticipate that you will need £100,000 to cover overhead costs for the next year, don’t borrow it all at once. If you do, you will be paying interest on money in January that you will not actually use until the end of the year. Taking the money in stages will reduce the amount of interest you will need to pay.

These are just a few tips we hope you will find helpful, but the point they all have in common is to think carefully about what you are doing and make sure that every transaction, large or small works to the advantage of you and your business.