Smart Money Management for a Home Business
Managing Money Smartly Requires Planning and Discipline
Oct 2, 2009
Planning and managing the inflow and outflow of money is the single most important factor in determining whether a business succeeds or fails. A home based business may have the additional disadvantage of not having the personnel to plan money management and/or monitor the cash flow on a regular basis.
However, by following a few simple smart money managing principles the owner of a home business can ensure the continued success of the business. It is also important to understand the difference between cash flow and profits.
- Cash Flow- is the money required to cover the business' day-to-day expenses.
- Profits- is the difference between the income and the outgoings of the business and is usually used to pay back debts and fund the long-term growth of the business.
Develop a Cash Flow Budget
Using a simple Excel Spreadsheet record the amount of money that flows in and out of the business, so that the availability of funds can be forecast at any given time.
Establish a Sound Receivables Strategy
Collecting the money that the business is owned in full and on time goes a long way towards a healthy cash position. Depending on the type of product or service offered, determine if extending credit is necessary. Payment in advance or a COD (Cash on Delivery) arrangement will assist in maintaining optimum financial efficiency.
Analyze the Cost of Doing Business
As much as possible eliminate or minimize fixed costs. However, understand the nature of the costs to determine if the best strategy is to hold or increase margins or to increase market share. The approach to cost reduction will vary depending on the chosen strategy.
Examine the Current Banking Structure
If the business has several accounts such as a trading account, a loan account, an overdraft account and/or credit card with several financial institutions, it might be possible to negotiate the reduction of fees by consolidating the debts into one banking facility.
Ensure the Loan is Right for the Purpose
Review the borrowings to ensure that the type of loan is correct for the the business. Getting the right loan product can save money and help improve the cash flow required to run the business. For instance when purchasing an asset ensure that the term of the loan matches the lifespan of the asset, because paying for an asset that is no longer useful to the business is not good money management.
Understanding smart money management and getting professional help, if necessary, to establish a cash flow budget and analyzing cost cutting strategies will help to ensure the success and growth of the business.
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