6 Money Management Tips for Small Business Owners

From making sure you get paid on time to mastering your budget, an expert reveals secrets to money management success.
Money Management piggy bank
Expert Richard Trimber suggests small business owners hire both an attorney and a lawyer. (Photo: Kraphix/Shutterstock)

When it comes to running a financially healthy company, every business owner has a common challenge: managing money effectively. If your small business is relatively new, you have a chance to put some best practices into place almost from the get-go. If it isn’t, better late than never.

Richard Trimber, head of the business law practice at General Counsel, PC, offered these tips to help you avoid common money management mistakes and protect your company’s bottom line for years to come.

Use accounting software

A small business owner must establish a system that allows the company to track revenue and expenses each month, according to Trimber.

“As a company grows, the platform upon which it is established must be strong enough to support it. With advances in technology and Web-enabled systems, it has never been easier to do this. You can literally snap a picture of a receipt and upload it to be tracked, so there is no more basketful of receipts,” Trimber said.

Create budgets and carefully track inputs

Monthly and annual budgets are a must — but it’s equally important to review those budgets regularly. “The mistake occurs when the small business owner establishes the budget and then never looks at it again until year-end,” Trimber said.

A well-run company understands the inputs that go into achieving the goals in a budget: the leads, the sales cycle and closing rates. These inputs should be tracked long before they hit the income statement, Trimber said.

He counsels clients to hold weekly meetings to review sales opportunities, track the close rates and catch items falling through the cracks. “There is a specific agenda for these meetings, so they are very effective,” Trimber said.

Manage your cash conversion cycle (CCC)

“The CCC is one of several measures of management effectiveness. It measures how fast a company can convert cash on hand into even more cash on hand,” Trimber said.

The CCC expresses the amount of time it takes cash to convert to inventory or goods and accounts payable, through sales and accounts receivable, and then back into cash, Trimber explained.

“Generally, the lower this number, the better for the company. Dell and online companies have negative CCC because they collect first and then send the product. Have you ever received anything from Amazon without paying for it first? Amazon posts financial losses often but is cash rich and investing for a distant future.”

Track your accounts receivable

“Poor accounts receivable means the company is having difficulty collecting payment from customers,” said Trimber. “A/R is essentially a loan to the customer, so delayed payment means there is a loss. The longer a company has to wait to be paid, the longer that money is unavailable for investment elsewhere. Usually this results in slowing payment of suppliers, which hurts your credit rating and relationships with suppliers.

“A few years ago, a client called because their A/R had ballooned and payments stopped. We did research and found the new accounts payable clerk was inputting all the invoices, but was sometimes checking the ‘do not print’ box in Quickbooks. Nobody realized they were mailing invoices only intermittently for over 90 days.” Customers who had already closed their books for the previous months were not happy.

Monitor credit card spending

If you run a small business, chances are you’re the only one with a business credit card, which can help you establish credit for your business. But if your company is large enough that some of your staff have company credit cards, be careful who gets them and how they are used. Trimber advised:  

1) Setting spending expectations and policies, including monthly spending and single purchase limits

2) Monitoring and reconciling credit card expenses monthly

3) Requiring receipts and a reason for the purchase

“Too many times, the credit cards are issued and uncontrolled spending occurs. In those cases, the system is based on trust instead of a written policy that is monitored. While trust is important, verification is too,” Trimber said.

Consult an attorney and CPA

Trimber recommended small business owners hire an accountant and an attorney to manage legal and financial issues, or better yet, hire someone with both skills.

“As a business operator, I met regularly with both [types of experts] to get an outsider’s perspective on my thoughts and actions. An attorney with a financial background and understanding of the importance of tracking revenue and expenses for legal, accounting and business health purposes is a company’s greatest asset.”  

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