10 Money Management Tips for Small Businesses [2022 Update]

Smart money management will set up your small business for success. Start with these 10 tips for a strong financial foundation to support sustainable growth.

Your small business has started making money and you want to optimize these profits to grow the company and meet your financial goals. If you're a new entrepreneur, these 10 strategies can help you gain the right financial footing when you launch your first endeavor.

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Why Is Financial Management So Important for Small Businesses?

Simply put, a solid financial plan allows your business to survive and thrive. Establishing predictable cash flow ensures you can cover expenses and take advantage of expansion opportunities. 

Good financial management can benefit your small business by:

  • Reducing errors that can affect your bottom line
  • Helping you track progress toward goals
  • Highlighting areas where you can reduce expenses and improve efficiency
  • Simplifying the process of filing business taxes and meeting other regulatory requirements
  • Creating a culture of financial transparency that can prevent fraud and inform operational decisions

10 Money Management Tips for Small Businesses

Start your journey to a sustainable small business with these 10 smart money management tips.

1. Avoid Late Bill Payments

Late payments result in costly fees and accumulating interest, making it difficult for your company to get ahead of debt. If your business doesn't pay bills on time, you can damage your relationship with suppliers and struggle to qualify for future financing. Consider setting up automatic payments for business accounts, loans, and lines of credit.

You can also try to negotiate flexible payment terms with your lenders and suppliers. When you have monthly, weekly and quarterly expenses, you can stagger the pay dates to maintain consistent cash flow. Some vendors might charge a slightly higher interest rate in exchange for flexibility, so do the math to find out if an arrangement makes sense before signing the contract.

2. Track Every Expense

If you have multiple business accounts, like a checking account, savings account, and credit card, you may not be keeping close tabs on daily operational expenses. This can become an even bigger issue if you have partners or employees who also make purchases from these accounts. 

If you don't already track every single purchase, start saving receipts for all purchases and reconciling transactions against your bank statements. Even small purchases like coffee for your team can create a cash flow problem when they go unrecorded. 

You might want to set up a petty cash fund to pay for small expenses. Having a dedicated account can make it easier to reconcile these costs and understand where the money goes.

3. Separate Business and Personal Finances

If you're the only owner of your small business, you may get in the habit of using personal accounts and credit cards for company expenses. 

Opening separate accounts allows you to take advantage of tax deductions while protecting your personal assets from business debts and legal judgments. If you mix business and personal funds and someone successfully sues your business, the court can take your property to pay the ordered amount. 

You can save money and streamline your finances by opening a fee-free business checking account that you use only for company expenses. Plan to pay yourself a salary from your company's earnings rather than mingling personal and business finances, which can be very difficult to sort out when it's time to file taxes.

4. Accept Electronic Payments

Reducing the amount of cash your company has on hand reduces theft, loss, and unchecked spending. When you start accepting credit cards, debit cards, electronic fund transfers, and digital wallet transactions, customers are more likely to buy from your business.

Pay.com can get your online operation started with secure, easy-to-use ecommerce tools. You can even put a PCI compliance badge on your site's customized checkout page to show that your transactions meet the payment card industry's highest security standards. 

Click here to find out how you can get started.

5. Create Earnings and Expenses Projections

Small business money management requires a proactive mindset. In addition to focusing on your company's immediate financial needs, you need to accurately estimate income and expenses for the future. Ideally, you should budget for all your expenses and project your earnings for three months, six months and one year in advance.

Having these numbers at hand can help you balance your cash flow. You'll understand which bills you need to pay immediately and where you may need to look for a loan or negotiate better payment terms with a vendor. To see cash flow at a glance, develop a budget that covers all sources of small business income along with all outgoing expenses. 

6. Proactively Manage Your Bills

Paying all your bills on time is important for the financial health of your business, but you generally have some flexibility about exactly when to pay. To gain more control over your accounts payable and optimize your cash flow, try these tips:

  • Select suppliers and vendors that offer payment flexibility
  • Periodically review your contracts to see where you can potentially save
  • Prioritize bills by due date first, then pay the accounts with the highest interest rates first.
  • Refinance high-interest loans and credit cards as you improve your company's financial standing.
  • Get in the habit of reconciling your accounts daily so you can make informed money management decisions.

7. Make Estimated Tax Payments

Business owners have to make quarterly federal tax payments to the IRS. While different business entities have different rules to follow, these payments are generally due on January 15, April 15, June 15, and September 15. 

This schedule helps you avoid a big tax bill at the end of the year, which can carry significant interest as well as fees if you fail to pay on time. You can make monthly tax payments instead if you prefer a smaller, more frequent expense.

8. Carefully Manage Your Inventory

You don't want your small business funds tied up in products you can't sell. To optimize your cash flow, streamline your inventory as much as possible and plan for a fast turnover of the items you keep in stock. 

You should also establish a tracking system to prevent financial loss from theft, damage, and other inventory issues. Regular physical counts help ensure that your products in stock match your computerized record. 

When you understand how long you keep items in stock, you can calculate your company's cash conversion cycle. This metric indicates the average amount of time it takes for the conversion of purchased inventory to profit. In general, the lower the cash conversion cycle the better. Use this formula to complete the calculation:

CCC = Average age of inventory + Average age of receivables – Days payable outstanding

9. Explore Financing Options

Once you have a solid money management strategy for your small business, you can take advantage of growth opportunities. A strong credit score helps you qualify for business loans and lines of credit so you can expand and meet new goals. 

When applying for credit, you'll need to show lenders a business plan with financial projections, accounts receivable reports, copies of existing contracts and agreements, business formation paperwork, and proof of collateral for secured loan.

If your credit needs some work, you can use a business credit card to build your score by making timely payments. Using the card for daily operational expenses keeps your cash flow flexible. You may also qualify for a rewards program so you can earn cash back for a percentage of your credit card purchases.

Over time, you'll be able to qualify for a larger line of credit. You can tap into these funds when needed to pay for emergency expenses, equipment, expansion and other costs that support the growth of your small business.

10. Establish Checks and Balances

Strong internal policies set up your business for long-term financial success. If you have a small team, you should put separate people in charge of handling money and keeping the books. Usually, a treasurer or cashier has responsibility for checks and cash while a clerk or bookkeeping records deposits and other transactions.

When you're only working with one or two other people, everyone should be aware of and involved in the company's finances. Putting protocol in place now can help keep spending in check as your small business grows. You may even want to outsource your accounting functions for the assurance of review by a neutral third party.

The Best Way for Your Business to Accept Payments

Pay.com offers a complete suite of payment tools for your small business, including the ability to accept credit cards and other payment methods. We charge transparent flat-rate fees so you won't be surprised by expensive bills, another way to keep your small business finances in check. 

You can create robust reports to analyze your transactions and expenses in our easy-to-use Pay Dashboard, putting financial insights at your fingertips. Click here to get started now!

The Bottom Line 

Financial management for small businesses means more than making money. You also need to ensure that you have sufficient cash flow, build strong credit, and have funds left over to expand your operation. These 10 tips set the stage for sustainability even in the first weeks and months after you open your doors. 

When you're ready to accept payments online or try out a new provider, you can get started with Pay.com in minutes. We combine flexibility, security, and affordability to help you create an outstanding payment experience for your customers. You can begin using Pay.com to manage your finances and take preferred methods of payment even before you have a website for your new business. 

FAQs

How can my small business accept credit card payments?

Pay.com provides an all-in-one platform where your company can accept customer credit card payments. We offer the highest level of industry security compliance and feature flexible tools so you can set up a branded checkout page, send secure Pay Links to your customers, or enter card numbers manually through the Pay Virtual Terminal.

Click here to create your account now

How do small businesses handle cash?

Small businesses that take cash should make daily bank deposits to reduce the risk of theft. This practice also creates a paper trail so you have a record of cash purchases. You should compare your deposit slips and electronic bank records to your business books to ensure accuracy and resolve errors that arise.

How do I create a money management plan for my small business?

First, develop a strategic plan that details objectives for your business. Then, you can ensure that your financial choices support these goals. Next, create projections of your company's revenue and expenses for the next 12 months. If you have profit after paying all your operational costs and debts, you can start saving toward your strategic objectives.

What's the 50-30-20 budget rule?

The 50-30-20 rule is a budget management tool you can try for your small business. You spend half (50%) of your earnings on necessary operational expenses. Then, 30% of the remaining revenue goes toward non-essential spending - the "wants" you have for your business. Finally, you use the last 20% to either pay down debt or save toward other goals.

Meet the author
Andrea Miller
Andrea Miller has been a writer and editor for more than two decades. Specializing in business and finance, she has written for some of the major websites in the financial sector. Outside of work, she spends most of her time with her family and enjoys hiking, yoga, and reading.
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