Money Management Tips for Business Owners
Two money management tips every entrepreneur must practice.
Money management skill is one of the vital skills every business owners must possess. If you are a young entrepreneur who has possibly been working as an employee, you may soon be faced with the reality of entrepreneurship.
While working as an employee, you are rest assured that at the end of every month, your pay check is guaranteed. But in entrepreneurship, you are not certain whether you will be able to earn enough revenue to cover your overheads for the month not to talk about having anything left for you.. As an entrepreneur or business owner, you will experience ups and downs. There will be some times that revenue may not even come in at all. While in some good days, it will be as if you are the only person in the market.
People will just be rushing in to buy what you sell. These ups and downs also have a lot to do about your cash flow. If you don’t have good money management skill, you may find it difficult to make both ends meet when sales are not forth-coming. In the same manner, you may be tempted to squander all your money during peak sales. I have seen people making this mistake in different occasions. When they record good sales, all of a sudden, they buy flashy cars to prove that they have arrived. This is not the kind of lifestyle that can sustain any business.
Today, I will share two money management tips with you so that you can know how to manage the money coming into your business.
Read Also: Understanding Working Capital Cycle in Small Business
Pay yourself
If you are running a business, either as a sole proprietorship, partnership or a limited liability company, you need to see yourself as an employee in that business. That does not negate the fact that you are the owner of the business. You should destroy ‘it is my business’ mentality. This is one of the factors that cause small businesses to fold up. If you see money that comes into your business as your own and begin dipping your hands into it, you are not doing your business any good. As a business owner, you need to be accountable. You should be accountable to yourself and then to your business. If you work in any organisation, you will agree to receive a specific amount as salary at the end of each month.
It does not matter how much the company makes in any particular month, you already know what to expect. In this same way, you should have a fixed amount that you expect from your business as salary at the end of each month. Who determines your salary? Of course, you need to determine your salary by yourself. The amount you will receive as salary should be what your business is able to carry as overhead.
You should not say because you earned big salary when you were working as an employee and therefore, you will like to maintain the same amount as your salary now. You should be ready to make some sacrifice at the initial stage. That is the spirit of entrepreneurship. So, your salary becomes an overhead for your business. With this, it is easier to plan when you have specific amount to expect as cash outflow for the month.
Read Also: Working Capital Management in Small Business (Part 1)
Develop Saving Culture
This is a difficult part of money management to some business owners. The habit to save has to be consciously cultivated. Until you see savings as a necessity, you may find it difficult to save. The same way that you are under obligation to pay your utility bills, that is the same way you should see savings. One thing is that, you may not have control over your revenue but you have control over your spending. You can command the money coming into your business where to go. If you don’t develop saving habit, you will soon realise that no amount will be enough for you to say you want to put certain portion aside as savings. Expenses will always grow to the level of your income. Therefore, the earlier you start saving, the better for your business. If you practise savings, you may not need to run helter-skelter looking for money to finance your business when business is low. In fact, money is most expensive when it is needed most. You may not know how expensive money is until you run out of cash. You will be compelled to accept terms and conditions that may not be favourable to your business.
If you can make these two money management tips part of your business practice, you will not be under pressure running your business.