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Running a small business is exciting. There are so many moving parts involved in growing a small business – it’s no wonder that certain processes take a backseat. If you’ve been so busy focusing on the day-to-day operations of your business that developing a solid money management system has been set aside, you’re definitely not alone.
Unfortunately, poor money management is one of the main reasons that small businesses fail. According to the US Bureau of Labor Statistics, about half of all small businesses will deal with the reality of this circumstance within their first four years of operation. You can prevent this fate by creating a working financial system and appropriate money management practices.
Financial Systems, the Basics
Successful small businesses don’t rely on unfiled invoices and shoe boxes filled with business receipts as their financial system. Today’s technology makes it easier than ever to manage your small business finances. There are several things to consider when developing financial systems for your small business.
- Size: Financial systems do and should look different, based on the size and volume of your business. If you are a sole proprietor, your financial system will likely look much different than a business that manages employees. As your business grows, your financial systems should be adapted to meet your expanding needs.
- Industry: The financial systems of a storefront that sells goods will differ from a business that focuses mainly on providing a service. Exploring online communities and professional groups for your industry can help you determine how your financial system should operate.
- Management: Who will be managing your financial systems? If you are planning on purchasing “out of the box” financial software, do you, or one of your employees understand how to use it and can you customize it to meet the needs of your business? In many cases, it’s best to rely on the expertise of a financial professional when developing long-term financial systems.
Money Management and the Small Business
It’s important for all small business owners to have enough cash on hand to handle regular expenses. Because the unexpected often happens, it’s also vital to have access to funds that can be used to cover emergency expenses.
As your business grows, having cash available to invest in staff positions or new equipment will also be needed. There’s no hard and fast rule when it comes to how much cash your business should have on hand, though most financial professionals recommend that it should cover three to six months of operating expenses.
Clearly understanding your cash flow, accurately estimating your profit and expenses and having an achievable plan of action in place to build credit and reserves will help you to minimize your risk of business failure. As your business grows, turning an experienced financial professional can help you stay on track and avoid financial pitfalls. In fact, around 50 percent of small businesses now rely on a controller or CFO to oversee their finances, according to the Wall Street Journal.
The Bottom Line
An experienced accountant will move your small business beyond basic bookkeeping and provide you with the data and advice necessary to manage your money as your needs expand. In many cases, working with an experienced financial professional is your best and most efficient option. The financial professionals at Lauzen Accounting provide the resources needed to help small business achieve their financial goals and manage their money more efficiently.
If you enjoyed this article, download our free eBook. It’s full of suggestions for avoiding financial problems that could lead to failure for your small business.