Financial management of a business consists of a set of techniques and activities aimed at managing the company’s money. Management can be done by small entrepreneurs, based on planning, recording and monitoring tools and operations.
At the same time, it is common for those responsible for smaller businesses to have doubts about this management process. Therefore, knowing what the most important steps are is essential to ensure better results in the financial area.
In this article, you will learn 6 essential tips for managing the finances of your small business.
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How important is financial management for small entrepreneurs?
This is not true because financial management is not only applicable to medium and large companies, but small businesses should pay extra attention to this issue since it can interfere with security and continuity in the market.
After all, good financial management allows small business owners to save in the right areas, improving the health of their business finances. Management is also useful for identifying opportunities to use resources more effectively.
In addition, the business may have better financial health, better investment capacity and more chances to compete with larger or longer-established businesses. Therefore, the process can help the company’s continuity and development.
6 Steps to manage your business’ finances
Now that you know why financial management is important, it is essential to understand how to put it into practice. Therefore, we have separated 6 tips that can help you better understand the process.
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1. Separate personal and legal entity accounts
One of the first steps to achieving quality financial management is to separate personal and business accounts. Without this initial step, the business’s money management tends to suffer.
In practice, separation begins with the creation of an exclusive PJ account for your business. There are already banks that offer free or low-fee accounts for companies, which prevents your profits from being compromised.
Furthermore, it is essential to separate financial transactions from your daily life. This means not using business money to pay a personal bill or receiving personal money into a corporate account, for example.
With this separation, you will have more visibility into the company’s real financial situation. This way, you will be able to make decisions guided by reliable data.
2. Create a business budget
After separating personal and professional accounts, it is necessary to prepare a business budget . It is part of business planning and helps small entrepreneurs make decisions about how to use resources.
In this budget, it is worth establishing financial goals and dividing the money between the different areas of the business. With this division, it is also easier to identify possible financial bottlenecks and where the main opportunities for savings lie.
To ensure that the budget is implemented as planned, it is necessary to implement financial control. It is used to record all movements, which will allow you to identify any need to adapt the budget, for example.
3. Perform bank reconciliation
Another important step in managing your business’ finances involves bank reconciliation . This step involves comparing the records of incoming and outgoing payments with the amounts on your bank statement. Since the account will be exclusive to the company, it is easier to do this validation.
The goal is to ensure that your own record is equivalent to the bank statement. Since the chances of the financial institution making a mistake are lower, a difference in the values allows you to identify hidden costs, for example.
With bank reconciliation, it is possible to have more confidence in the financial entries made. This way, it is possible to provide yourself with more relevant information when making decisions regarding the use of resources.
4. Use cash flow
Another tool that every small business owner should use is cash flow . It consists of a record of all financial transactions, including inflows and outflows of resources in the company.
There would be ways by which it becomes possible to examine the cash periods when more funds are available as cash and then when outlays are high. This is relatively easier in arranging how to have the cash usage for keeping on with the operations of the business.
In addition to the cash flow that records the amounts realized, it is possible to use the projected cash flow. The purpose of this resource is to record accounts receivable and accounts payable.
It is useful both for monitoring obligations to suppliers and for predicting the inflow of funds from customers. With this feature, it is easier to understand when a larger amount of money is needed to meet the business’s obligations.
5. Follow management reports
In addition to the tools mentioned, you can include management reports in your portfolio. They consolidate various financial data, such as reports that show movements by category or that compare expected and actual cash flow, among others.
The idea is to be able to use this data to make informed decisions. This way, business management tends to be favored and it is possible to boost the development of the small business.
6. Adopt technology in financial management
As you have seen so far, there are several operational tasks to perform quality financial management. However, as a small entrepreneur, it is common for there to be many other responsibilities in addition to financial management.
Therefore, it is important to seek practicality and efficiency when carrying out tasks. This is possible by investing in technology. With financial management software , for example, it is possible to perform several tasks automatically, from bank reconciliation and cash flow to report generation.
In addition to saving time, data is more reliable because there is less risk of errors and rework. And this automation is viable even for smaller companies.
