Running a small business means juggling multiple responsibilities, which can make it tempting to let certain tasks (like managing finances…) slide. Financial management, though challenging and sometimes outside your comfort zone, is crucial to your business’s success. Here are some key financial best practices to help you keep your business on a solid financial footing.
Pay Yourself First(!!!)
As a small business owner, you might feel compelled to reinvest every pound back into your business. However, it’s important to ensure you’re also compensating yourself. Paying yourself regularly is essential not only to cover your personal expenses but also to build your personal financial stability and plan for retirement. Set a consistent salary that allows you to take care of your needs while also maintaining your business’s health.
Open a Separate Business Bank Account
Mixing business and personal finances can lead to confusion and make it difficult to assess your business’s performance. By keeping your business and personal accounts separate, you gain better insight into your business’s cash flow and spending patterns. It also simplifies record-keeping for tax purposes. Ensure your business income flows into a dedicated business account, and then transfer your salary to your personal account.
Implement a Strong Billing Strategy
Handling late-paying clients can be frustrating, and unpaid invoices can disrupt your cash flow. To minimise this issue, establish a robust billing strategy. Track which clients are prompt payers and which ones tend to delay. Consider instituting policies such as charging interest on late payments, offering early payment discounts, or requiring upfront deposits for large projects. Send invoices as soon as the work is complete and follow up before payment deadlines to reduce delays.
For clients with their own established payment terms, make sure to understand their timelines and factor those into your invoicing process. Adapting your billing practices to client expectations while still protecting your cash flow is essential.
Keep Digital Records of Receipts
Gone are the days of shoeboxes filled with receipts. With digital platforms available, you can easily store and manage your receipts electronically, reducing physical clutter and improving organisation. Make sure to know your local regulations on record-keeping and retain receipts, payroll records, and other financial documents for the required period.
If you still have paper receipts, create a filing system that keeps them organised and accessible. This makes it easier to find what you need during audits or when preparing financial statements.
Create a Realistic Budget
A well-planned budget is your roadmap to financial success. It outlines your expected revenue and expenses for a given period, helping you anticipate cash surpluses or shortfalls. Having a budget enables you to make informed decisions and identify periods when your business might need additional capital or where expenses might increase.
Additionally, a solid budget is often a requirement if you’re seeking funding from banks, investors, or other stakeholders. Make budgeting a regular practice to stay on top of your financial health.
Final Thoughts
Effective financial management is critical to your business’s success. While there are many strategies you can use, starting with the basics (paying yourself, separating your finances, implementing an efficient billing strategy, and maintaining a budget etc) lays a strong foundation. From there, consider adding advanced practices such as automating bill payments, creating cash flow statements, and selecting the right business structure to streamline your operations.
Looking for a Fulham accountant to help you manage your business finances? Reach out to our team today to get started – we’d love to help.
e: office@londonaccountants.co t: 0203 137 9791
Kind Regards,
The Team at London Accountants
