Running a small business is an incredibly difficult task. As many entrepreneurs begin to think about pursuing their career dreams, they find themselves muddling through the mechanics of business. Even if business finances and management are your least favorite part of being a small business owner, they may be the most critical aspect to your success. Included here are a few things to know about small business finances.
In every industry, there are going to be times when money is tight. However, if your business is experiencing a lack of funds on a frequent basis, it may be an indication that your money is mismanaged. Chronic cash crunches could be indicative of several different problems, all of which are manageable and preventable, once you notice them.
For example, one cause of money shortage may be that your gross margins are too low, meaning you’re discounting your prices too much or your overhead is out of control. Additionally, your payment process may be giving customers too long of a period to pay and leaving you without funding. Your inventory could also be too full, causing you to tie up cash in stock that should be used elsewhere.
Trust and Track Management
Another way to improve employee efficiency, and save money, is through the “trust and track” system of management. Imagine if your employees enjoyed working and valued the company to the point that they were trustworthy with company finances and staying self-motivated? Effectively, what this tool is doing is breaking down all of the important day-to-day tasks that are required for the business, but not assigning them to a specific employee.
Many management systems depend on supervisors and managers to tell the employees what to do throughout the day. This leads to greater pressure on the manager to remember things, and a failure to self-initiate among employees. By simply having a list of things that must be done, each employee can take on tasks as they are available, instead of waiting around for direct instruction.
Plan for Rainy Days
As any business manager knows, business can be unpredictable. You are not able to predict a recession, or what the newest trend may be, so you could have no idea whether your business will continue in an upswing or fall on hard times. The trick to weathering the financial storms of small business ownership is through appropriate planning.
Just as individuals need to have emergency savings, your business needs emergency savings even more. By having a plan B and developing contingency plans, you will be able to weather various catastrophes that could strike your business. Be sure to set aside funding and an alternative method of business operations for when, or if, things go south.