Keys to Managing Finances in Your Small Business

Keys to Managing Finances in Your Small Business
by kmhagen
June 17, 2005

One of the keys to the success of your small business will be not only having sufficient capital and financing, but also properly managing your finances. Some of the principal aspects involved in managing your small business finances will be planning, to identify your financing needs; comparing the different types of financing available, in order to obtain the most advantageous terms; projecting your cash flow to anticipate and prepare for cash disbursements; and monitoring and controlling your expenditures and financial activities.

Clearly identify the resources you need
Your business plan and your budget should tell you what resources you need. If you are starting up a business, you will need to consider organization and start-up costs, capital expenditures, and working capital requirements. You will need sufficient liquid assets to operate your business until you start generating a profit and positive cash flow. If you are already in business and are planning for growth or an expansion, the resources you need will probably be similar. You should not necessarily over-estimate your resource requirements, but a degree of conservatism may be in order, in the sense of adding in a certain cushion, to ensure that your plans will not be affected by a lack of resources.

Use your own resources, without sacrificing your personal or family budget
Using your own resources, and those contributed by your partners, if applicable, may be one of the most efficient ways of financing your business, in the sense that you will not have to pay interest and will not have to give up an equity interest in your business to a third party. But you should not over-extend yourself and use money that you and your family need to pay living expenses and maintain your standard of living. Having your own business means taking on personal responsibility and commitments, but imposing too much of a burden on your personal life may not be productive for your business.

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