5 Ways to Strategically Manage Your Small Business’s Finances

5 Ways to Strategically Manage Your Small Business's Finances 2020-Negosentro
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Negosentro| 5 Ways to Strategically Manage Your Small Business’s Finances |Starting a business is a gamble. Only half of new ventures are still running after five years. And cash flow is a significant challenge. Most small business owners mainly rely on personal finances to start (and keep) their businesses running, since obtaining financing can be a challenge. 

Liquidity is your company’s life source. Therefore, managing your company’s finances is critical to the survival of your small business. Don’t become a negative statistic — consider these five ideas to manage your small business finances strategically.

1. Structure Your Company Properly

Your company’s legal structure will get your small business off to the right financial start. Separating your personal assets from your business assets legally protects you and helps you qualify for small business loans. 

To structure your small business properly, set your company up as a business entity in the form of a Limited Liability Company (LLC) or Corporation. Once you’ve set up your business entity, apply for a federal Employer Identification Number (EIN) and open all of your company’s bank accounts in your legal business name.

At this point, be careful of how you commingle your personal and business assets. Although the majority of business owners fund their business using personal money, there are ways to do so without blurring the lines between your personal and company assets, such as loaning your company money. 

If you need to take cash from your business for personal reasons, do so as a draw, by paying yourself a salary or paying back part of the loan you provided your small business. If these methods don’t sound familiar to you, it’s best to consult with a business accountant to learn the ins and outs of keeping your business and personal finances separate.

2. Set Up a Cash Flow Budget Today

As with personal finance, running a business by using a budget allows you to control your spending, minimize waste, and forecast how much money you’ll need to cover your company’s expenses. 

Consider having two budgets — one for tighter months and one for months when income and cash flow is higher. The lower-earnings budget should be bare-bones, only including the minimum amount of money your business can spend to continue to operate. The higher cash flow budget should include a savings contingency to put money away in reserves to get your company through the slower months.

3. Watch Employee Payroll Spending

Employee payroll is one of the most substantial expenses a company has. And the amount grows annually. The Bureau of Labor Statistics reported that employee payroll costs “increased 2.7 percent for the 12-month period ending in December 2019.”


To offset the rising cost of compensation, consider tracking employee time. The more detailed your time tracking, the clearer the picture you’ll have about your team’s productivity. Having accurate figures can help you determine where your company’s processes need to be better streamlined, what departments could benefit from more (or fewer) hires, and what the return on investment for the compensation you pay is. On the same token, make sure that your time tracking doesn’t turn into micromanagement. If it does, it’s more likely to backfire.

4. Build Your Company’s Cash Reserves

As mentioned, cash flow liquidity is the lifeblood of your business. Although it’s hard to plan the future needs of your company, having a cash reserve account to get your business through the slower months is vital. A business savings account should be a top priority — even before you plan on investing in expansion or growing your business. 

Depending on the seasonality of your business and how your sales and income varies from month to month, you should save for at least two or three months’ worth of expenses. It may take some time to build a cash reserve account, but every bit you save will give you the flexibility you need to ride out the slower months.

5. Don’t Spend Your Tax Allotments

A business can get into serious trouble if the owner forgets to properly account for tax liabilities such as sales, employment, and payroll taxes. If your small business collects sales tax, the amount should immediately go into a holding account dedicated to paying your sales tax liability to your state. 

Mixing your business’s funds could cause you to spend money that should be allocated for taxes, leaving you to scramble at the last minute to cover large tax bills. Among the tax mistakes small businesses make, not paying your tax liability on time could cost you extra in penalties and interest.

It’s All About Strategy

As with other small business aspects, financial decisions should start with a strategy or plan. Having a forecast of your business finances and knowing what steps you can take to adapt to the market changes can increase your chances of survival. Consult with a business mentor or accountant for a better understanding of business finance, so you have all the tools you need to grow your small business.

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