Tips for Effective Small Business Financial Management

Making a complete record of finances, be it cash flow, daily, weekly and monthly turnover records, as well as business purchase records are important things that need to be done. No matter how small the business that you are running, prepare records well, so that one day the business will be large, you will not be inconvenienced. In addition to these reasons, financial record keeping is really needed to measure performance and targets, whether they have been achieved or not.

Many small businesses go bankrupt when in fact it can potentially become big, only because of the problem of ineffective business financial management. The matter of managing business finances is indeed often a very complicated problem for novice entrepreneurs. Managing business finances effectively is a method to maintain the flow or flow of company funds so that no leakage results in financial losses. For those of you who want to know and understand how to manage business finances, consider the following financial management tips.

Simple Tips to Manage Small Business Finance

The following are some simple financial management tips that you can do to manage effective small business finance.

1. Understand financial accounting

To manage bookkeeping effectively, you need to create at least 5 separate account books that record each transaction. The required account books are cash flow books containing records of money going in and out, inventory books, purchase and sale books, accounts payable books, and books on costs and other income besides selling goods or services.

2. Separating business finance with personal finance

In general, the main factor in the bankruptcy of small businesses is that they do not separate business finance from personal finance. If you do this, it is not clear which money is for business, and which is money for personal needs. You can take salary from the profits of your own business for personal use. often small businesses do not separate their personal finances from business finances. The reason is because the business is still small, so it is considered not yet complex. Though it is a fatal mistake that can result in business failure.

3. Plan the use of money properly

As a businessman, you have to plan for the best use of money, especially when you have more capital than has been calculated. You should not waste money even though your business cash balance is in a position to have more than enough funds. Adjust expenditure plans with sales targets and cash receipts as well as possible. You can postpone capital expenditure plans if you don’t benefit in increasing sales or reducing costs. Next, you need to do a cost and benefit analysis to ensure that the use of your money will not be in vain and can provide a profitable return or increase business profit.

4. Perform effective cash rounds

Don’t just focus on profits, but ways to manage business finances also include how you manage debt, receivables and inventory. Many businesses have cash difficulties even though their accounting records show good numbers. Pay attention to how you rotate cash, because the cash cycle will slow down if the credit sales term is longer than the purchase, or if you have to store inventory of merchandise. You must make credit sales terms the same as credit purchases, and you must also be able to reduce inventory levels in such a way as to be able to fulfill orders without burdening your finances.

5. Ensuring profit calculation

Your goal as a businessman is to make a profit. But do you know how much profit you have gained from the business? Calculating profits correctly is as important as generating profits itself, where the most crucial part in calculating profits is calculating costs. Most costs can be identified because they involve cash payments. But some others are not in cash, such as depreciation and amortization. Then some of it hasn’t happened yet but needs to be reserved for future issuance, such as taxes and loan interest.

6. Utilizing third parties or using software

You can use employees or third parties to help keep track of your small business finances. Invest in human resources, or if it isn’t already possible, you can use the help of special software to manage your business finances. There are already tons of simple financial management software for small businesses on the market. The price varies according to your needs. By using the software, you can save time and work.