To those of you who are starting your own business, you enter into an entirely different world of finance – corporate finance. Just like with personal finance, it’s crucial to educate yourself on how to manage your money when it comes to your own business. How you manage your money can make or break your empire, but don’t worry. We’ve got your back and are going to begin with the basics – this is money management for business.
This article contains affiliate links however, all opinions are our own as always.
Just note, if you know you are terrible with your personal finances, this can quite easily carry over to your business and be detrimental to your operations. If you’re not completely confident that you have a handle on your personal finances, have a read of these posts before you look at your business:
Firstly, Grab Your Freebies!
Now, we’ve done a bit of hard work for you and collated some terms and ratios that you’ll need to know when it comes to money management for business. Take 10 minutes to read through these and keep them handy. Somewhere along the way, these terms will pop up so you may as well get started early! Not only that, but these terms and ratios will help you assess how your business is travelling financially and give insight into your position. Don’t worry, it’s not hard and we’ve given you all the simple and most important calculations you need. To download your list, just click HERE and you’ll be able to access it straight away!
#1 Know Your Financial Statements: Money Management For Business
If you’re already bored by reading that title, just hold up. This is why you’re at our site, we make this sh*t fun, so read on. That, and you actually REALLY need to be familiar with these!
In a nutshell, you just gotta make yo’ numbers balance! Also called ‘statement of financial position’, this IMPORTANT statement displays your financial position outlining your business’s assets and liabilities. There’s a really special equation that you’ll need to be aware of when you’re completing a balance sheet:
Assets = Liabilities + Shareholders’ Equity
We’re just going to super quickly break this down for you:
Assets: your cash, inventory, property, plant, & equipment (a.k.a you’re investments)
Liabilities: your obligations to creditors (a.k.a short-term & long-term debts, accounts payable)
Shareholders’ Equity: sum of your current liabilities (liabilities satisfied in 1 year) and your non-current liabilities (beyond 1 year).
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Profit – such a positive word that we love saying we made in our business. “We made a profit” – see, how good does that feel to say! This statement will list your revenues (that cash money) and expenses over a period of time. It’s going to display your net profits, and is a great way to compare your previous years to your current year.
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Statement of Cash Flows
Your income statement will spit out your profit over a certain time period, but it’s going to neglect to tell you how much cash you’ve actually accumulated. Why you ask? (we’re guessing you’re asking). On your income statement there will be non-cash entries (a.k.a depreciation and amortization – say what?). Also, particular uses of your cash (building purchase for example) aren’t recorded either.
So, what your statement of cash flow does is tell you where your cash has been generated from, and where it’s being allocated to (hey, kinda like a budget!). If you are a company that is looking for investment capital, this statement will actually be the most important one of all, allowing the investor to value your company.
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#2 Always Manage Your Expenses
You’ve heard us rave on about managing your fixed vs. variable expenses when it comes to budgeting. It’s no different for your business. Your fixed expenses are ones that are not affected by your production (internet, office space rent, insurance, depreciation, salaries etc). Your variable expenses are a result of changes in your business activities (inventory, shipping, raw materials etc). Make sure you’re constantly monitoring your expenses and don’t let them get out of control. Ignorance is NOT bliss in this case.
#3 Don’t Mix Personal With Business
Bad idea. Keep it separate guys. We’re not saying don’t use your own money to invest in your business to begin with, but once you start gaining some traction and start making money, separate the two. Open a savings account for your business, grab a company credit card. When it comes to paying your taxes, you’ll thank yourself later!
#4 Project The Future
Time to put that brain to work and map out your future goals…financially that is. Depending on your business, you may want to do a full revenue model that allows you to project your savings for the next few years…or get some genius modeller who can do it for you. No matter what business you have, if you’re serious about it, it’s important to look ahead and analyse the potential of your business. Especially if you’re looking for investment capital, you’re going to need this.
#5 Accounting Software
Ugh, how epicly boring! (is what you may be thinking to yourself). Sorry, but this NEEDS to be mentioned. Yes, you need this. This plays such a crucial part to the management of your business (yes, even bloggers need this too). Accounting software is going to help you keep track of your cash flow, generate reports for you, complete calculations and is going to be your best friend at tax time.
Not only that but using accounting software is going to save you heaps of time. Don’t be old school and use your pen and paper. Get with the times. If you’re looking for an amazing accounting software that is super easy to use, we recommend Xero! (it’s even got a 30 day FREE trial. We just made life so much easier for you…you’re welcome. We have personally used this software for accounting and it’s as easy as eating cake to navigate.
If you need something super simple, go to the Xero Website.
#6 How Are You Going To Re-Invest?
So, you got some moolah coming in…now what? Do you save it? Spend it? What do you spend it on? Think about where your money is BEST spent in terms of your business and how to bring in more clients/sales. For example in the blogging world, we might use our earnings to firstly pay off our expenses (monthly services) and re-invest into Facebook advertising. Be SMART with this and ensure you’re always optimising your business operations and ways to bring in more business.
#7 Manage Your Mindset: Money Management For Business 101
Your emotions play a big part when it comes to spending and managing your money, and you’ll need to keep them in check when it comes to your business. Never be reactive when it comes making financial decisions, and always work through obstacles practically. Most importantly though, move forward with a positive mindset when it comes to the money management for business. It’s no walk in the park owning your own business, and there will be struggles (sorry to be the bearer of bad news). But these struggles help you grow and create a successful empire.
Let us know if you found this helpful! If you want to know more on money management for business, leave a comment so we can expand on any of these topics for you. Don’t forget to grab your freebie on terms you’ll need to know when managing your business finances. Click HERE now if you’re serious about managing your money!
Amanda & Julia xx