When I was in high school, kids around me wanted to become doctors, engineers, pilots, and whatnot. As for me, I was always the odd one out whenever I said that I dreamed about becoming a digital marketer.
Time flew by, and right after my graduation, I opened a small digital marketing agency. Even though I was happy to realize my dream, there was something that worried me a lot: Finances. Honestly, I wanted to create unique and creative ads for my clients, nothing else. However, being a business owner, finances were a major aspect that I simply couldn’t ignore.
So, by making some mistakes and learning from them over the years, I finally learned the art of managing finances effectively. Below, I will share a few tips from my experience that may help you manage your business finances.
Allocate Your Budget Wisely
Small business owners may relate to the fact that we don’t always have the money to spend on everything we want. Although it’s frustrating, we still need to be sensible and make the most of everything we have.
Here, I would suggest that once you’ve got a budget, determine the tasks according to their importance.
For instance, as a digital marketer, I always prioritize software subscriptions over other tasks. Simply because without the relevant tools, my work and productivity may come to a halt. So, figuring out the important tasks brings clarity to my budget allocation and helps filter out the tasks that can wait.
Record Your Expenses
For me, recording every business expense was always a tiresome task. But, as important as it was to keep an eye on profits, tracking expenses couldn’t be ignored.
As you may know, there are multiple benefits to recording your business expenses, such as:
- You may understand business spending patterns and explore ways to better spend your money.
- You can determine if there is a chance to cut down costs (I’ll explain it later).
- Recording your expenses may help while filing tax returns and ease the process of book reconciliation.
That said, there are multiple finance or money-management apps or software, like FreshBooks, that you can use to keep a record of your finances. Such apps can automatically record every expense and generate financial documents like balance sheets, ledgers, and more.
Explore Ways to Cut Costs
Frankly speaking, I was only fixated on maximizing my profits when I started my digital marketing agency. And I completely sidelined the fact that cutting down my business expenses indirectly meant increasing my profits.
Lowering your business’s costs is easier than you might think. All you need is to be a little creative and look around to find ways to cut down the business costs.
For instance, I used a blazing-fast internet connection to seamlessly use my heavy marketing tools and software. Also, to stay in constant communication with my clients and employees, I took services from a phone service provider.
But after exploring ways to cut down costs on these utilities, I found out about Spectrum deals and bundled an internet connection with my phone. Bundling them together was cheaper than using these services separately.
Also, I received a single bill for both utilities, a welcome perk I didn’t even think of as it helped me save time. So, as I said, you need a little creativity to explore ways that may help you reduce business costs and maximize your profits indirectly.
Build an Emergency Fund
Initially, I didn’t believe in emergency funds, as I saw no point in building one.
However, during the peak COVID months, my clientele reduced significantly, and I had to borrow money from family and friends to keep my business up and running. That is when I realized that having an emergency fund you can depend on in desperate times is necessary for small business owners.
An emergency fund will keep you safe from debt, and give you peace of mind. And, building an emergency fund is easy but demands discipline and consistency.
I believe an emergency fund should be able to cover your 4 to 6 months of expenses. So, you can decide for yourself how long you want to save and how much you want to contribute to the emergency fund every month.
Frequently Asked Questions (FAQs)
Is it necessary to hire an accountant to manage business expenses?
No, it is not necessary to hire an accountant, since services like Square, FreshBooks, Wave, and more can also effectively manage your business expenses.
What are overhead costs?
Expenses like rent and utilities, which have no direct contribution to your sales or production, are overhead costs.
How do I ensure the long-term financial stability of my business?
You can ensure the long-term financial stability of your business by creating strict financial guidelines, keeping a close eye on expenses, and reducing unnecessary expenses.