Most entrepreneurs are more interested in their business ideas and consider financial management as a matter of course. They think if business is good, finance will be just as good. If the business profit, then the money will just flow. This assumption has a point, but can be misleading. It is true, the source of business cash is sales and profits. But business is not just how to make money, but also how to spend and control it.
Financial management is not just how to manage cash. But more than that, financial management is how you manage wealth to generate profits and utilize sources of capital to finance business. Although simple, even small and medium-sized entrepreneurs need to apply the principles of financial management. Here are some basic financial management for small entrepreneurs
1. Separate Personal and Business Money
The most common mistake made by small entrepreneurs in managing finances is mixing business money with personal money. Maybe because the business is still small, you think it doesn’t matter if you mix business money with personal money. But mostly, it is difficult for you to distinguish between personal and business expenses. As a result, personal needs gradually reduce the balance of business money. Separate money physically. If necessary prepare two different boxes or envelopes or money storage purses. Better yet, if you use banking services. Open an account that is specifically used for business. And most importantly, be disciplined in applying this separation.
2. Plan the Use of Money
Even when you have more capital than you think, you still have to plan for the best use of your money. Don’t waste money even though your cash balance seems excessive. Without careful planning, soon you will find yourself in a state of underfunding. Adjust expenditure plans with sales targets and cash receipts. Undermine capital expenditure plans if they do not provide benefits in increasing sales or reducing costs.
3. Make a Financial Logbook
Business is not enough to be managed based on memory, but with complete records. At a minimum, you must have a cash book that records the entry and exit of money. Then match money balances every day with your notes. This is to control the money traffic and ensure no money is tucked. Next, increase your administrative ability to record sales and expenses. No less important, you must also keep track of your outstanding receivables, inventories, and fixed assets. If you can, use a computer system to facilitate the recording process. And it would be better if you could implement an adequate accounting system.
4. Calculate Profits Correctly
Your job as an entrepreneur is to make a profit, but do you know how much profit you have gotten? Calculating profits correctly is as important as generating profits. The most critical part of calculating profits in calculating costs. Most costs can be identified because they involve cash payments. Others do not take the form of cash, such as depreciation and amortization. Some have not yet happened but need to be reserved for future issuance, such as taxes and loan interest.
5. Play Cash Flow Faster
Don’t just focus on profits. Financial management also covers how you manage debt, receivables and merchandise inventory. Many businesses have cash difficulties even though their accounting records show blue numbers. Watch how you rotate cash. Your cash loop is slowing down if your credit sales term is longer than if it’s not, or if you have to store inventory of merchandise. You should try to make credit sales terms the same as your credit purchases. You must also be able to suppress inventory levels in such a way as to be able to fulfill orders but without burdening the finances.
6. Monitor Assets, Debts, and Capital
Periodically, you need to check the inventory in the warehouse and make sure everything is complete and good. But before you can do that, you need to have adequate administration to control all of it. The same thing you need to do with accounts receivable to buyers and bills from suppliers.