Five Things Every Small Business Owner Should Consider About Finance Management

Being a CEO demands leadership, people skills, and an aptitude for management. Unless you have a rich relative like Uncle Pennybags from the Monopoly boardgame to bail you out, then you also need to possess some level of financial prowess.

Keeping your small business afloat with the ebb and flow of the economy means you know when to borrow, spend, and save. In essence, running a successful business is about managing risk and reward. Go through this checklist of five money management tips to see if you need to alter your current approach to ensure your fiscal boat is always riding high.

5. Know How to Handle Profits

profit management
photo credit: 401(K) 2013

You run a small business to make money. You may have other motives too, but profit is certainly part of the equation. Now that you have profits rolling into your coffers, think carefully about how to manage them. At times, it may be best to invest a portion of your money, rather than spending it.

However, seize the opportunity to put money back into your business when market conditions tell you that expansion, diversification, new staff, or new equipment hold the potential for growth.

4. Keep Close Tabs on Payroll

payroll management
photo credit: John Lambert Pearson

Even if you have a very small staff, payroll is one of the most complicated aspects of your business. Make sure you have the appropriate security measures in place to account for every cent that’s paid out to employees. If you’re still issuing checks, then consider switching to direct deposit in order to save thousands of dollars annually.

Work with an expert who can help you determine the appropriate amount of money to withhold from paychecks for taxes, insurance, retirement, and Social Security. Mistakes with payroll often have costly consequences, so it’s wise (and financially smart) to do it right from the start.

3. Build Credit

Many businesses find themselves needing to borrow money, because the demand for their product or service is on the rise. For this reason, it’s wise to begin building credit so you can ensure that your company can handle the extra workload when the time comes. One way to do this is to take out small loans, and then pay them back quickly. You can also use tools like CreditBuilder™ from Dun and Bradstreet Credibility Corp. to help improve your D&B® credit scores and ratings to gain credibility with lenders.

2. Borrow Money to Increase Profits

When you need to invest in your business but don’t have the necessary profits, you should consider taking out a line of credit or getting a small-business loan. Many small companies make the mistake of using one-time money (such as a loan) to fund ongoing expenses. So when the loan runs out, there will be a hole in the budget unless profits happen to be up that quarter. Instead, use borrowed money for things like buying equipment that will increase productivity, or save the business money.

1. Manage Expenses

Don’t let yourself get away with only taking a critical look at expenses once or twice a year. Review those line items in the budget quarterly. Ask vendors with whom you have a strong relationship for a better deal. For example, find out if you can get free shipping in exchange for ordering a larger supply of goods at one time. By cutting deals (and therefore, expenses), you’ll put more money into your pocket.

What are the best money management strategies you’ve used to boost profits?