How to manage finances in a small business? Which functions are better left to the owner, and which – to delegate to the accountant? Let’s also understand why most entrepreneurs are always short of funds.
I want to give you some very practical advice: if you have a small business and your finances are a mess, this principle is key.
Top Financial Management Tip
People are very rational about money. Money and numbers are hard to stuff. But finances in a small business can drive an entrepreneur crazy. The reason is that in a disorganized business, managing finances looks like a flow, which means that every day some money comes in, every day you have to make decisions about some expenses, see random letters and lots of numbers, so you have to understand why you need a w2 form. It’s very difficult to manage the flow, there are difficulties in prioritizing.
So, my advice is this: stop making financial decisions every day.
A financial game that will change your approach to money
Try playing one wise game that will completely change the way you think about money. Its essence is that you only have to make financial decisions once a week. That is, for 7 days money goes into your checking account, but you don’t spend a penny from it. I agree it’s not easy, but a week is easier to get through than a month.
By the end of that period, you’ll have both money and bills piled up.
First point: you’ll finally be able to match them.
Second point: when you make a financial decision, forget about what’s coming tomorrow. Take the view that you only have the money you have today. Don’t take into account funds that are “coming in tomorrow,” “about to come in,” that’s an abyss.
What’s the benefit of playing the game
Once you play the game, you’ll discover some interesting things. First, there will be far more bills to pay than money to pay. And that’s common, otherwise, you wouldn’t be interested in financial management at all! Don’t think there is anything wrong with your business; this state of affairs is normal. There are always more needs than opportunities, but this is what pushes us up and contributes to our development. Secondly, it is only through play that you will begin to truly prioritize. Yes, for a small period, but it’s a great start.
The first step to financial planning
Take this principle as a rule in your financial activity: make decisions only once a week, and no money should be spent without financial decisions. All receipts for that period are in the account, a list of expenses for the week is made (try to somehow fit into that amount). And, when it doesn’t work out, you’ll start prioritizing, thinking, and making good decisions.
Get away from trying to manage the financial flow, because then you will make huge mistakes. You don’t have an overview, you don’t see even a small financial picture for the week. By stopping allocating funds to the flow, you will be able to see the real picture of your business
The bottom line is the perfect picture.
Ideally, the owner should set the rules for managing finances, and managers should follow them daily and monitor them. That’s the ideal to go. And getting away from managing the flow will be your first step toward it.
Come to have a weekly decision point, your company will “get smarter” about finances. I’m not talking about you and the way you think, but the specific decisions you make and their consequences.