Why do most if not all companies go into business? The answer is right in your bank account: Money! So I beg the question, why are there so many entrepreneurs that do not pay the necessary attention to it? Although everyone thinks of ways to make money, there are a lot less entrepreneurs thinking of ways to manage money. Most businessmen who own companies know why money management is treated with little to no sympathy and is not given much attention.
Most entrepreneurs spend all their time handling customers and employees, developing products, delivering services, negotiating contracts and many other tasks. Given the large amount of tasks entrepreneurs usually have to deal with on a daily basis, it’s no wonder that money management is the last thing on their mind. Their main concern is paying the bills and having money in the bank, while money management is set in the background. However, this is not the best way to manage the money your company brings in. By not considering money management as an important aspect of your business, you will start to lose considerable amounts of money.
Money management doesn’t require a great deal of your time to think over ways on how you could lose less money. You just need to keep in mind a few key components. This way, you will take better care of your money and have a sense of accomplishment in the end:
Be prompt and send your bills. There are so many entrepreneurs out there that wait months before they send the bills to clients and customers. Try making a habit out of billing immediately after you’ve delivered a service or a product to your customers or partners even though the bill isn’t due for the next 30 days. It’s a well-known fact that, the longer you take to send out invoices, the greater the chance to not get paid: if you don’t pay enough attention to sending your bills on time, why would your costumers pay on time?
Check your financials regularly. I understand that it’s difficult to run a business and take time to look at the books. But, you know as well as I do that you can’t manage money if you don’t keep track of the facts. You don’t need to be an accounting wizard to do this in an easy and efficient manner. There are several accounting programs for entrepreneurs out there (LessAccounting, for example) that make your life easier. Do this at least once a month if you don’t find the time to do this weekly or daily. Check out all areas like cash flow, income statement, checkbook balance and others.
Don’t just check your present financials. Do this for the past ones as well, and try and determine what financial distress may come your way in the future. Look ahead, create an income and a cash flow projection. Be as conservative as you can.
Make sure to pay special attention to where you put your earnings. Some companies hire employees that move money daily from one account to another just to increase the amount they bring in on interest and investments. Most small companies and startups usually have only one checking account, with all their money deposited there, regardless of the balance. If you’re in this situation, go talk to your banker or an investment company and ask for information regarding other types of accounts that can bring in money through interest, even though it will not be available immediately. For example, “sweep accounts” require you to not do anything, while the account automatically switches the excess cash into interest-earning accounts. A little bit of planning can go a long way if you want your money to make you some more money.
There is always a point in time when money is tight. It’s just how things are and once you accept that you can prepare yourself if your company would have to sail through rough seas. Undoubtedly, the economic crisis has affected most businesses. Their ignorance and considering that they were “too big to fail” was their downfall. That is why you should line up credit even if you don’t need it. You could also use credit cards that have high credit limits, but this alternative will be more expensive. At least it’s a way better option than going out of business.
Be sure to manage your growth. Growth translates into an increase in expenses without seeing an increase on a short-term basis. Do this step carefully so that your financial ability may be compatible with your expenses.
You should also get a retirement account. Self-employed retirement accounts are the way to go for self-employed or sole proprietors. In my opinion, it’s the best way to keep the IRS from knocking on your doorstep. By allowing people to invest more in 401(K), Simple and Keogh plans, they can redirect more of their money to taxes. This will help you save money and also provide you with a more secure financial future as well.
Last but not least, save money. During the activity of a business, there will always be fluctuations. To make sure that you always have cash in handy, put the excess cash away and keep it for rainy days.