vThe U.K. has a total of 5.5 million small businesses— which play a vital and striking role in the economy.
From employing a staggering amount of individuals to significantly contributing to the country’s GDP, small businesses deserve all the financial management support they can get.
With recessions, ongoing international disputes disrupting supply chains, an out gloom of pandemics, and emerging technological trends, small businesses face an array of challenges that demand better financial planning.
In this article, we shall deep dive into a few key strategies that small businesses can consider to handle their financial management more wisely.
Opt for token vesting management
If you are a business that operates in the blockchain sector or deals with digital assets and has a global team then implementing a token vesting scheme can be extremely beneficial.
Token grants are allocated at different stages and at specific time intervals to all the team members.
This not only motivates them and boosts their loyalty towards the business but enhances overall productivity also.
Toku is the leading platform that enables businesses in managing and coordinating their token vesting schedule more conveniently.
From design and structuring to managing vesting, cliffs, and lockups, to payroll integration and tax withholding—this platform takes comprehensive care of all these aspects.
Automate where possible
Manual financial management often turns out to be error-prone and time-consuming.
If you haven’t already then consider investing in automation software to handle financial processes like budgeting, payroll, and invoicing. Since these software work on autopilot, they reduce the chance of mistakes and free up time so that you can focus on strategic actions for growth.
Some great options in this space include:
- Quickbooks for accounting
- Gusto for payroll, and
- Wave for invoice and bill management
Invest in financial planning and analysis
Oftentimes small businesses overlook the importance of a solid financial planning and analysis practice due to either lack of necessary knowledge or time constraints.
However, profiling your business to evaluate its potential for future profits, understanding market trends, and preparing a thoughtful budget—all play a key part in wise financial management and though it may seem like less pressing routine operations, these efforts hardly ever go unrewarded in the longer run.
Not only will this promote a firm grip on financial health but provide data-driven insights to make informed strategic decisions — a chance to progress for a thriving year ahead and beyond.
As good advice, you can consult a Financial Planning & Analysis (FP&A) professional or use software services like Adapt or Integrify to forecast your revenues and expenses and manage your business margins better. Adding the best dunning management software can help reduce churn.
Consider hedging for better risk management
If your small business features large and uncertain future cash flows—for instance, importing commodities that strongly fluctuate in price—drafting a potential hedging plan can significantly help.
Hedging involves entering into a financial agreement, where you buy or sell a commodity — say oil — at its current price for future transactions. This provides a cushion against probable future changes in the prices of the said commodity.
Consider collaborating with financial institutions or acquiring hedging tools to embark on this journey.
Acquire loans responsibly
Debts especially loans are not necessarily harmful frameworks—they fundamentally aid an existing business to stabilize or prepare the ground for a start-up.
Small businesses, with robust credit management, can opt for loans to manage their daily expenses or long-term infrastructure investments without waiting for cash accumulations. But, ensure that over-reliance on borrowings doesn’t lead to the creation of an unmanageable interest burden.
Loans should be availed responsibly. Analyze your repayment capability before plunging into customer-level interbank issues.
Digital lenders are go-to resources in this area—they assess credit risks objectively compared to traditional lenders and process applications more quickly.
Related reading: 10 Ways to Find Funding to Grow Your Business
Map out your tax obligations and consultation
Every business, whether small or big, has a tax obligation that needs continuous supervision and timely fulfillment.
Understanding the different categories of taxation including business taxes, employment and NI taxes, and value-added tax among others is an essential aspect of financial planning and strategizing.
For a beginner, getting your head around tax deductions, filing deadlines, and exemptions can be an intimidating process. Ignorance or avoidance of this could lead to hefty fines and penalties. This is why hiring a tax consultant or investing in tax consultation services can be beneficial.
Educate, upskill, and retrain yourself and your team
Building an intimate understanding and competency around finance is also key to successful financial management in small businesses.
It’s advisable to invest in in-house professional development programs or consider online courses to increase the team’s financial acumen. Businesses that equip their workforce with finance competencies often see improved financial outcomes. This also keeps staff engaged, updated and reduces outsourcing costs.
There are multiple academies like Coursera, Udacity, or Khan Academy offering finance-related courses—even dedicated diplomas for comprehensive understanding and practical applications.
Establish a sturdy financial reserve
Having a robust financial safety net can provide your small business with the liquidity it needs during unplanned circumstances.
Maintaining a healthy reserve will enable your business to navigate through unexpected downturns, fulfill emergency payouts, and finance pivotal ventures that may do wonders for your company.
It is recommended to have at least three to six months’ worth of expenses saved to ensure continuity of everyday operations.
Building a financial reserve takes foresight and disciplined saving practices. Businesses can start small and grow their funds as they stabilize and diversify their sources of earning.
Related reading: Building Wealth and Financial Security Through Investing
Take account of your customer’s payment history
Establishing sound credit policies catered specifically towards your customer base crucially underpins your finances.
Analyzing your customers’ credit scores and payment history would provide a reasonable indication of their ability to honour future payments. This evaluation helps secure sustained cash flow, thereby potentially averting liquidity crises or strenuous layers of debt recovery, in turn, multiplying your business capabilities.
Consider utilizing customer payment reports and credit management systems offered by financial service providers — serving diligence and growth simultaneously.
Use technological advancements
Technology can be a game-changer for the financial management of your small business.
Today, advanced software can automate and streamline almost every aspect of financial management tasks, from tracking transactions to facilitating payments, inventory management to comprehensive financial reporting. Such tools not only save you valuable time and effort but also significantly mitigate the risk of human errors associated with manual tracking and calculations.
Artificial Intelligence (AI) and Machine learning (ML) based financial technology tools empower businesses to conduct wide-ranging predictive analyses, in-depth data monitoring, and real-time financial tracking.
You can acquire these technologies from industry leaders like Intuit, Zoho Books, or Square. They provide offerings that are customized to the varying needs and demands of small businesses, helping them unlock their full financial management capability.
Monitor business performance and financials regularly
Keeping a constant eye on your business performance can allow you to take immediate action should any financial complications or disparities arise.
Monitor revenue and expense trends in your finance tool or any tracking system that your business uses on a regular basis. This regular scrutiny can help detect any inconsistencies or areas where expenses could be clipped to save money.
Implement Key Performance Indicators (KPIs) relevant to your financial goals. This methodology, featuring components like cash flow forecast, gross profit margin, and net profit amount, helps evaluate organizational performance, steer your work in the right direction, and measure your team’s competency standard.
Achieve this by holding monthly or quarterly sessions to discuss financial results and outcomes in-depth and set clear, measurable financial targets for your team to attain. Comment on deviations and create effective action plans to rectify the issues.
Incorporate simple, but essential, measures like double-checking invoice and payment details, maintaining a strict recording system for all transactions, and never ignoring minor discrepancies — by proactively managing financial irregularities, your small business operations can stay healthy and profitable.
Alongside internal financial audits, opt to include an external financial audit by a professional facility. Having an objective viewpoint allows for an impartial analysis of your company’s economic status and helps to identify potential financial red flags.
Stay compliant and legal
Good business practice predicates legally compliant business operations and utmost adherence to financial regulations.
Ensure you’re updated about various laws concerning taxation, labor wages, customer and supplier management, or any other liabilities that pertain to your business model. Negligence of these directives might lead to substantial legal penalties which can inflict harm to your financial stability.
Adopting comprehensive training programs and opening communication channels can defend your personnel from inadvertent legal missteps.
Leveraging legal management systems such as LegalZoom or Rocket Lawyer can assist in maintaining up-to-date legal compliance effortlessly.