Everyday Money Management Tips For Small Business Owners


If you run your own business, then you know that cash is king, and it’s up to you to handle money management effectively so that you have the cash you need when you need it. Many small business owners start with very little operating capital, so they know how to operate on a tight budget. However, once the money starts coming in, they have trouble adapting their money management strategies to ensure that their bills get paid and that they have enough money to fund business growth.

In fact, 29% of small businesses fail because they run out of cash. Eighty-two percent fail because of cash flow problems. Many small business owners also seem to know less about their business finances than their personal finances. For example, 45% of small business owners didn’t know that their business has a credit score, and 82% don’t know how to interpret their credit score, even though it is a vital metric to qualify for a business credit card or a small business loan.

Understanding basic money management strategies could mean the success or failure of your small business. Here are some basic money management rules that every small business should consider:

Don’t mix personal and company money. 

When you are just starting out, it is tempting to use your personal bank accounts to handle business expenses and receivables. Don’t. There are many reasons why you should separate your business and personal finances, such as taxes, personal liability, and confused bookkeeping that could cost you money and would be disastrous in the event of an audit. If money gets tight, for example, securing your business operations using personal savings will create a mess that you may not be able to clean up.

The best way to keep finances separate is by setting up separate bank accounts, such as one for personal checking and one for business checking. You also want to maintain separate budgets and separate expense sheets, including how you pay yourself. Consider using a business credit card exclusively for company transactions to simplify expense tracking. Doing so will simplify bookkeeping, and will make it easier for you to monitor and gauge how your business is doing. 

Related: Download the Budgeting Checklist for a list of income and expenses to  include when planning out your household budget.

Consider yourself an employee.

It’s tempting to put all of your money back into the business to promote growth. Many entrepreneurs choose not to pay themselves when they are starting out. That’s a mistake. Your efforts are key to your business’ success, and they should not be free. You need to pay yourself, just as you pay employees and suppliers.

There are a number of ways you can pay yourself from your business. If you are running a sole proprietorship, for example, you don’t get “paid” with a paycheck, but draw cash from your profits. Be sure to keep a close accounting of the money you draw because you don’t want to take out too much profit, or you won’t have money for expenses, emergencies, and taxes, including self-employment tax. If you are incorporated, consider establishing a payroll system. When in doubt, check with your accountant or a financial professional.

Pay your bills on time.

Every business struggles with cash flow problems from time to time, but paying your bills in a timely manner is an important part of money management. Not only do late fees cost your business money, but they also affect your company’s credit score. There will come a time when you will need to borrow money to cover an emergency or expand your business, so maintaining good credit matters. Most banks and credit unions can help you stay current with scheduled automatic payment strategies and email reminders.

Watch expenses, but also consider ROI.

Frugality is always a good practice, whether it’s with personal expenses or business finances. However, you want to balance watching pennies with missing opportunities that could yield returns on smart spending. Be aware of where you spend your money. Money spent should have a clear purpose tied to a return for your business.

Practice good financial habits.

Whether it’s your personal finances or your business bookkeeping, staying up to date on your financials can eliminate cash flow problems and protect you from fraud. Be sure to log transactions in a timely manner and track both expenses and income to closely monitor cash flow. Also be sure to implement basic financial controls, especially if you have employees.

Pay your taxes.

One area where small business owners are frequently caught short of cash is when it comes time to pay taxes. If you are self-employed, a sole proprietorship, or a larger business, then you still need to pay estimated taxes. The easiest strategy is to set aside a percentage of profits in a business savings or money market account to pay those taxes. If you have trouble making quarterly payments, consider moving to a monthly tax payment schedule.

Find the right financial institution.

Money is essential to every business, so it makes sense to get expert assistance with your money management. Find a financial institution with a diverse range of business banking services that can help your business grow. For example, in addition to checking and savings you may need payroll services, business loans, merchant banking services, mobile banking, and other financial services to help you manage your money more effectively. Your bank or credit union should be a trusted advisor who comes to know you, your business, and your specific business needs.

iQ Credit Union offers a complete range of business banking services, and because we are a community credit union, we want to invest in neighborhood businesses. Finding a financial institution that is right-sized for your business and ready to help when you need it goes a long way toward ensuring success, as well as helping you deal with immediate money management issues. At iQ Credit Union, we are always here and ready to help.



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