Effective Financial Management Strategies for Small Businesses

Keeping your business finances on solid ground requires more than just maximizing sales and minimizing expenses. There is a significant amount of activity between money coming in and going out. If your financial management processes aren’t focused and efficient, you could lose a lot of time and money due to errors and missed opportunities.

1. Establish Rigorous Payments Tracking

When a business is just starting out, the volume of payments in and out may be relatively small. In those early days, it’s probably easy to know how an invoice went from being submitted to being paid. However, as the volume increases and multiple parties become involved, establishing procedures and robust tracking becomes vital.

If too many people can participate in financial processes, an error can become a nightmare to resolve. For instance, if a wire transfer is sent to the wrong account, it complicates the situation significantly. Without adequate tracking systems, it can take much longer to identify who made the error and how to correct it.

To combat this, it is highly recommended to use software that records essential details of who performs each action and when. Wherever possible, businesses should employ individual logins rather than a shared account. While tracking who performs each action is crucial, it’s equally important to monitor approvals. There should consistently be another set of eyes reviewing any substantial outgoing payment, and having electronic approval tracking reinforces this responsibility.

2. Automate and Schedule Wherever Possible

While technology is not infallible, it can significantly reduce errors in financial management. Automating payments increases the likelihood that they will be paid on time and not forgotten. If you know about a payment that needs to go out in two weeks, scheduling that payment right away can simplify the process, eliminating the risk of human oversight.

Additionally, using digital calendar functions can be immensely beneficial for business processes. Being reminded to perform certain tasks on a consistent basis can boost income potential. For example, if you have a high-yield savings account for excess cash, setting recurring reminders to check balances and upcoming expenses can lead to valuable financial management.

3. Check Major Business Moves Against the Tax Code

When planning significant purchases or enacting substantial business changes, it’s critical to evaluate any tax-related benefits you should leverage. For instance, if planning to renovate a commercial property, you might overlook opportunities to claim deductions, such as the Energy-Efficient Commercial Buildings 179D tax deduction, which has recently increased due to legislative developments.

There are numerous tax deductions and credits available to businesses, and failing to consider these can put you at a disadvantage. Even minor revisions to your business policies, like updating paid maternity leave to comply with existing credits, can yield significant financial benefits.

Avoiding Costly Mismanagement

Establishing good financial management strategies sets the foundation for making income work as efficiently as possible. With planned and incurred expenses, there is theoretically a return on investment. Therefore, a proactive approach to financial management is essential for every business.

Disclaimer

The information provided here is not investment, tax or financial advice. It is advisable to consult with a licensed professional for advice concerning your specific situation.