Managing money is hard enough at home – layer how to manage business finances on top of that, and you’ve got an easy recipe for stress and burnout. But, just like at home, there are simple things to do (and not do) to ensure your small business is financially sustainable. Avoid these big, costly mistakes so you can continue growing your business with confidence.
Your Ultimate Guide to Small Business Money Management
Small business money management is probably not a phrase that gets you excited to jump out of bed every morning. But, your small business – and the dream it represents – won’t last long if you don’t buckle down and manage the heck out of it. This is your ultimate guide to small business money management, so you can stop avoiding this gross, uncomfortable topic and start growing your business with confidence.
You Need to Know How to Manage Business Finances 💸
When you deliberately ignore or avoid problems they often compound and get harder to solve.
Even worse, perhaps, are the problems you can’t even see – the ones that catch you off guard and surprise you.
Lucky for you, every mistake you make is also an opportunity to strengthen your business.
And, a quick financial health check-up might help too.
| FREE CHECKLIST: You Absolutely Need This Simple Business Financial Health Checklist
Your business should never be static. It’s got to be a living, breathing thing that you are continuously finding ways to improve.
As you learn how to manage business finances, there’s a lot you need to get right.
So, sometimes, it helps to think from the reverse angle – specifically, what do you absolutely not want to do?
Here are five small business mistakes to avoid:
Small Business Mistakes To Avoid 01: Not Enough Cash On-Hand ⚠️
One of the key financial mistakes business owners make is not having enough cash on hand.
Cash On-Hand is how much money you have available to spend quickly. Think liquid, movable funds – actual cash in the bank. Not lines of credit.
Just to say it, as a general rule, you want more cash flowing into the business (via income) than out of the business (via expenses). 😉
Learning How To Run A Successful Small Business? You Need Cash!
Cash is essential for growing a business – cash funds business short-term priorities, operations and growth.
It provides the funds for payroll if you have a team (or if you’re ready to pay yourself).
Yes, just like with personal finance, you can use credit when needed. But, also like personal finance, you need to be strategic about if/when you pull that lever so you don’t put the business under water from the start.
Cash can also help you respond to shocks or setbacks – and jump on new opportunities and trends.
Cash, therefore, is also about flexibility – helping your business be nimble in a changing environment.
How To Manage Business Finances With Simple Steps
To improve you cash situation, you might:
- Track how much money flows in and out each month.
- Review your cash situation – including what’s on-hand, what’s incoming, and what’s expected to be outgoing – before making a business decision
- Make a list of your non-negotiable expenses, so that you can prioritize your resources.
- Practice discipline about using credit strategically to avoid interest payments.
- Forecast your spending so you know when your big expenses hit your account each month.
- Eliminate non-essential expenses – at least until you have a steady cash flow.
| RELATED: How to Manage Money in Business Always Starts with a Mindset Boost
If you’re not confident today about how to manage business finances, here are a few more places to start:
Take a moment to pause & reflect.
- How much cash is available to you on a regular basis for ongoing business operations?
- How prepared are you to respond quickly to shocks, setbacks, or emergencies? How prepared are you to respond quickly to exciting new opportunities?
LEARN HOW TO MANAGE MONEY WHEN STARTING A BUSINESS
Save for emergencies & opportunities. Just like your personal finances, it helps to have an emergency fund – cash you set aside just in case you need it for something big and unexpected. To be clear, the unexpected could be a problem, like needing to replace machinery or broken tools, or it could be an exciting opportunity you want to seize. Consider saving enough to fund 2-3 months of operations plus a little extra.
Small Business Mistakes To Avoid 02: Runaway Costs ⚠️
Another one of the financial mistakes business owners make is letting their costs get out of control.
Learning How To Run A Successful Small Business? You Need Control Your Costs!
Again, this is a parallel to personal finance – your expenses can’t exceed your income, at least not for long.
Unlike the unicorn startups of Silicon Valley, you need to be profitable as quickly as possible. That means being diligent with where your money is going.
And, not just big expenses like inventory or raw materials, but the details too, like within Cost of Goods Sold.
| RELATED: How to Lower Business Expenses & Increase Profitability with 1 Essential Idea
It’s also about all the little expenses along the way – a new lamp for your workspace, sending a gift to a previous client, buying candles for the waiting room. It all adds up quickly.
How To Manage Business Finances With Simple Steps
To get costs under control, you might:
- Track every expense for a few weeks to get a handle on where the money is going.
- Buy supplies, ingredients, or other raw materials in bulk to save money.
- Check that all of your expenses are truly essential to the performance of your business.
- Validate that your customers care about a particular feature – maybe something you thought was important isn’t that important to them, revealing another expense you could eliminate.
As you learn how to manage business finances, keep in mind, if your expenses exceed your income, your business won’t last very long without incurring more debt.
Take a moment to pause & reflect.
- What are you doing to track and monitor your costs today? How consistent are you at watching these expenses?
- When was the last time you analyzed your Costs of Goods Sold or your Total Operating Expenses? How have those expenses changed over time?
LEARN HOW TO MANAGE MONEY WHEN STARTING A BUSINESS
Create a budget. Again, just like your personal finances, you need to ensure the money going out is less than what you bring in each month. Name any big recurring expenses if you have them and commit to tracking any variable or one-off expenses. You can use a spreadsheet to track the changes over time.
Small Business Mistakes To Avoid 03: Unrealistic Sales Forecasting ⚠️
Setting an unrealistic or overly rosy sales forecast is another one of the common financial mistakes business owners make, adding unnecessary stress and pressure to their work.
A sales forecast is about looking ahead and planning for the sales to come, asking: how much do you expect to sell?
Learning How To Run A Successful Small Business? You Need Realistic Sales Targets!
You need to be pragmatic and accept that growth takes time.
If you’re going in without a plan or intending to have a multi-figure quarter right out of the gate, you might not be setting yourself up for success.
Yes, challenge yourself, aim high, and stretch your comfort zone. But, don’t set the bar so high that you have no hope of success.
Strike a balance – not too easy, not too difficult, just a nice healthy stretch.
You want to aim for a number that will help you grow from the experience and boost your confidence at the same time.
How To Manage Business Finances With Simple Steps
To come up with an effective sales forecast, you might ask yourself questions like:
- How many orders/sales came in last month? Or, how many appointments did we book?
- How has that changed compared to last month?
- What seasonal peaks or valleys might be coming up that will boost or drag sales?
As you learn how to manage business finances, keep in mind, a realistic sales forecast is not about limiting your vision or making you play small.
No, you should dream big and take a swing, just strike a balance.
Take a moment to pause & reflect.
- Do you have a sense of how your business typically performs? What’s the trend over the last 3 months?
- What might account for any peaks or valleys over the last year?
LEARN HOW TO MANAGE MONEY WHEN STARTING A BUSINESS
Forecast your sales. What might you consider to effectively plan your sales for the next few months? Set a target that feels achievable and based in reality, but is also a healthy stretch of what you can do. Push yourself to grow, but don’t expect a six-figure income from the jump.
Small Business Mistakes To Avoid 04: Paying Yourself Too Early ⚠️
Of all the financial mistakes business owners make, paying themselves too early might hurt the most because of the scramble and disappointment it can cause.
Avoid that “oops, I forgot to account for this big expense” feeling.
Learning How To Run A Successful Small Business? You Need To Know When To Pay Yourself!
Just to be clear, paying yourself is a wonderful thing. You should be proud of what you’ve built and reap the rewards.
The problem comes when you pay yourself before you’re truly ready to draw earnings – before you’ve accounted for a bunch of other variables, like expenses, taxes, bills, and more.
You might also need to accept that the amount you pay yourself right now might be different from what you’d ideally want in the long-term.
Yes, a multi-figure salary would be ideal, but give yourself permission to build up to that gradually.
How To Manage Business Finances With Simple Steps
Before you pay yourself, double-check that you:
- Forecast your cash flow to see if you need to cover any expected shortfalls.
- Consider upcoming bills or short-term expenses on the horizon.
- Calculate the impacts on Net Income for the month or quarter.
- Account for taxes (yes, don’t forget about paying taxes on your profit).
| RELATED: Learn more about Net income and the Income Statement
By the way, this also assumes that you are keeping your business finances separate from your personal finances – another important step if you’re learning how to manage business finances.
Take a moment to pause & reflect.
- How do you know when it’s time to pay yourself? What has to be true in the business to say it’s okay?
- How much is enough? What limits might you place on the earnings you draw?
LEARN HOW TO MANAGE MONEY WHEN STARTING A BUSINESS
Make a checklist. List the things you personally want to validate before hitting “transfer funds” and paying yourself. What are the various things you might double-check? And, list a few rules to set limits on what you pay yourself. For example, you might say that you always want a certain amount of cash on-hand or that you want enough sales on the books to fund next month’s operations. Reference this list before paying yourself.
Small Business Mistakes To Avoid 05: Not Investing for the Future ⚠️
Finally, the last of the financial mistakes business owners make is not investing for the future.
Learning How To Run A Successful Small Business? You Need To Invest In The Future!
It’s so easy to just focus on getting by in the short-term, right? Running a business can feel frantic, like you’re always behind.
And, it might always feel that way if you don’t pick your head up every once in a while and look ahead and plan for the future.
You’ve got to invest some of your profit back into the business to make it more effective.
After all, things might be okay now, but you want this thing to run well into the future.
A little bit of investment here and there, will eventually transform your business into a finely-tuned machine, freeing up capital, making you more profitable, and giving you more capacity to solve problems and think big.
Strong execution is also critical to success – something you’ll learn more about in my workbook:
| WORKBOOK: How to Run a Business Successfully with These 3 Essential Entrepreneurial Skills
How To Manage Business Finances With Simple Steps
To invest in the future strength of the business, you might:
- Examine your Cost of Goods Sold and find ways to lower your costs per unit, increasing profitability.
- Streamline your processes
- Purchase new, faster, more efficient tools or equipment.
- Set money aside for bigger expenses, like retail space or a marketing budget.
- Take a business course or buy a workbook to help you grow your skills.
- Consider working with a coach 1:1 to help you break through the obstacles in your path.
As you learn how to manage business finances, be sure to look ahead and think about how to improve your business, not just run it as is.
| RELATED: How to Improve Business Performance & Increase Profit with 2 Key Metrics
Take a moment to pause & reflect.
- Are all of your expenses about managing the short-term? What future goals or investments are on your radar?
- Where is your business least efficient? Or, which parts of the process are the most time consuming or expensive? What changes might make things better, faster, or easier to execute?
LEARN HOW TO MANAGE MONEY WHEN STARTING A BUSINESS
Make time to think about the future of your business. Where is this all going? Are you setting yourself up for long-term success? What’s happening in the market that you need to adjust to? Take a look at your calendar and add a block of time to focus on your business strategy, financials, and operations. Is all of this working as well as it could? Where might you intentionally disrupt your business in order to improve it?
Learn How to Manage Business Finances – Start Here 🤓
Take a moment to think about everything you’ve learned about how to manage business finances – here or elsewhere.
You’ve probably thought quite a bit about what you want to have happen.
But, have you given as much thought to what you don’t want? Hopefully, this article was an opportunity to consider that.
It can be really helpful to carve out the negative – this was a chance to name some rules and boundaries and get clear on the small business mistakes to avoid.
You can learn more about these and other small business mistakes to avoid with my Small Business Money Management Email Course!
| EMAIL COURSES: 4 Amazingly Simple Email Courses For Small Business Owners
As you continue learning how to manage money when starting a business, come back here to the 321 Liftoff blog for more ideas and insights, so you can start and grow your business with confidence.
additional tools, links, & downloads.
Start here:
- READ: How to Make a Business Profitable with 4 Clear Financial Boundaries | 321 Liftoff
- READ: Why Startups Fail | HBR
You might also like:
Make a commitment.
Hopefully, you’re leaving with several ideas of what to try next. So, take a moment to aim your effort.
- What’s one thing you’d like to do differently after reading this article?
- What commitment are you willing to make in service of your growth?
- How will you hold yourself accountable?
Questions, comments, or ideas for the blog? Sound off in the comments!
Join the conversation.
As you’ve learned how to manage business finances, what mistakes did you flip into opportunities?
What ideas or questions does this spark for you? Share some of your reflections in the comments or send me a message.
Starting and growing a business is not a straight line.
It can feel messy – it zigs and zags, it starts and stops. It can feel frustrating even for the most seasoned business owners. And, that’s ok.
It’s also an exciting challenge. It’s going to stretch you. You’re going to learn a lot – not just about business, but about yourself.
And, that’s why it’s worth it.
TAKE THE SPIN OUT OF STARTUP 😵💫🤩
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