How to manage the finances of a small business? 

The first thing you need to know about financial management and accounting planning is that these terms are not restricted to large corporations. It is clear that, depending on the size of each company, more work is required in these areas, but even a small business needs to organize these tasks well. 

Having good financial management will help your company not only survive during difficult times, but also increase its chances of growth. Without knowing how your money is doing, it is difficult to have a complete overview of your company, where you can improve and how you can invest to move forward in the next steps. 

As we have already said, it is clear that you can count on the support of excellent professionals to help you with this task. However, as an entrepreneur, it is important to acquire knowledge to avoid problems, mistakes, oversights and even bad faith. In addition, it is important to remember that each business is unique and has specific needs. 

However, some principles are basic to any business. These include defining financial goals and objectives, establishing schedules, and maintaining an emergency fund, which will help your business during times of crisis and falling revenues. In addition, there are areas and tasks that are universal – and these are what we will discuss in the following sections of this text. 

What are the main areas of financial management for an SME? 

As you can imagine, there are several areas within the financial management of a small or medium-sized company. Don’t worry, we will detail each of them in the following paragraphs.

Planning

Before carrying out any task, you need to plan – and financial management is no different. In general, this task involves putting down on paper all the relevant information about your company’s day-to-day financial activities. This information includes: 

• Initial budget;
• Working capital;
• Emergency reserve;
• Company assets;
• Forecasts for the coming months;
• Previous analyses, if any.

Cash flow control

Once you have a basic diagnosis of your financial situation, it is important to move on to monitoring your cash flow. In companies that do a lot of operations, such as retailers, it is important to monitor your cash flow on a daily basis. If you provide services or only perform a few high-volume jobs, you may want to consider monitoring your cash flow on a weekly or monthly basis. 

Controlling your cash flow is simple: just check your income and expenses, taking into account your sales and payments. Monitoring this activity regularly can help you get a better understanding of your business’s day-to-day performance, knowing how much you earn per day/week and how much of that is left over for profit. 

Expense control

Anyone who does business knows the basic formula: “profit is everything you invoice, excluding expenses.” Therefore, one of the most important ways to increase your profit is to find out how much you are spending and control these expenses, whether on raw materials, logistics, taxes, and employee payments, among other expenses. 

Having a detailed view of your company’s expenses, from electricity and water bills to occasional expenses that may arise, is extremely important so that you can see, over time, possible savings opportunities. 

Forecasts and projections

Another very important area of ​​financial management is to be concerned with the future of the business, making predictions about the market and projections based on these ideas. 

For example: if you sell chocolates, you can predict that you will have a higher demand during Easter and Valentine’s Day. And then you can project, for example, that hiring an extra person during the busy production season could increase the supply of products, increasing your profit even with the costs of hiring. 

On the other hand, if you sell imported items and the dollar exchange rate is rising, you may need to anticipate that your products will become more expensive and you may sell less. 

These are indicators that help you plan the future of your business, making adjustments before delicate moments. 

What are the types of financial management for small businesses? 

As you can imagine, there are different methods for managing the finances of small businesses like yours. In addition, there are different types of control, and each entrepreneur knows which one works best for their day-to-day operations. Here, we will present some of the most common types of financial management – ​​and ideally, you should do a little of each of them, so that you don’t miss any points. 

Cash flow control

Cash flow control, carried out on a daily basis, is one of the simplest ways to manage a company’s finances. After all, it allows you to have a constant picture of the company’s financial movements, understanding its health almost like a heart rate monitor. 

Furthermore, cash flow control serves as input for other analyses of your finances, so it is a task that demands a lot of attention. 

Accounts payable and receivable management

Another type of financial management is accounts payable and receivable – basically, the company’s expenses and income. It consists of a spreadsheet with two sides, one of which represents the costs and the other, the income for a given period. It is a very popular method because it allows you to easily understand the flow of financial resources, including fixed costs, revenue and expense forecasts. 

Working capital control

Another important financial management activity is working capital – the name given to the money that any company has set aside to continue its activities. Unlike invested capital, which is kept in the bank, working capital concentrates the resources needed to keep the operation running. If you have a bakery, for example, working capital is used to pay for flour and the salaries of bakers. 

Ideally, working capital should be sufficient to complete a cycle between investment and receipt of revenue, but each business has its own peculiarities. However, in some markets, it is common to have long collection periods, and therefore it is important to pay attention to working capital control, which allows the company to continue operating normally. 

Invoice management

In large companies, other types of financial management may be necessary, but in a small company, another necessary model is that of invoice management . After all, issuing invoices is an obligation of any company that provides services, due to the payment of taxes. 

Keeping track of invoices is a way to monitor not only your company’s accounting, but also to ensure that you are up to date with the IRS. In the case of companies that request services from suppliers, it is also a way to ensure that your payments are up to date.