A business’s financial management is a collection of methods and practices used to manage its finances. 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?
Contrary to what some entrepreneurs may believe, financial management is not exclusive to medium and large companies. Small businesses should pay special attention to this issue, as 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.
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 entities
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 stage is checking the numbers on your bank statement with the records of arriving and outgoing monies.. Since the account will be exclusive to the company, this validation is easier to do.
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.
Through cash flow, it is possible to check the periods when there is more money available in cash and when there are more outflows, for example. This makes it easier to plan how to use the money to keep the business running.
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.
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.