A Step-By-Step Guide To Money Management For SMEs

The COVID-19 pandemic highlighted the importance of smart money management for businesses. 

Business data from the Office of National Statistics showed that a total of 100,835 businesses in the UK closed in the third quarter of 2021, a 50% increase from closures in the third quarter of 2020. To protect themselves against global crises and other unexpected events, businesses need to learn how to manage their finances wisely. That means staying on top of payments, organising cash flow, and optimising business expenses. So, with that in mind, the following tips can help small to medium enterprises manage their money.

Step 1: Monitor Income And Expenses

Every business should have a good handle on where its money goes. As we mentioned in ‘7 Ways to Cut Your Business Expenses’, keeping track of income and expenses helps you identify whether you are allocating your resources wisely. Understanding your expenses can help you figure out how to cut down later on.

Start by saving all receipts, both digital and physical. From there, find a place to store transactional data. Less tech-savvy businesses tend to use spreadsheets, but those that want to streamline the process can use cloud accounting software, such as Quickbooks, Freshbooks, and Xero. High-quality accounting software can integrate with your bank accounts to automatically import your transaction history into a comprehensive bank feed.

Step 2: Create A Budget

Once you’ve identified key spending areas, it’s time to make a smarter spending plan. Here’s where budgeting comes in. According to AskMoney’s guide to budgeting, the first step to building a business budget is to use historical income data to create accurate revenue forecasts. Once you’ve estimated how much you might make each month, figure out which expenses you can cut down to maximise profit.

Be sure to be realistic about reductions — if you resort to lower-quality services just to save, you might end up losing more money in the long run. For example, a restaurant that sources cheaper but lower quality appliances might have to spend more on replacements or repairs later down the line.

Step 3: Control Spending

Making a spending plan is one thing, sticking to it is another. Fortunately, many modern banking apps come with features that help you control spending according to your budget. The online bank Monzo, which won the award for Best British Bank in 2022, has a feature called Tax Pots. Monzo’s Tax Pots tool lets you divide income into dedicated expense categories — such as a pot for payroll, a pot for operating expenses, and a pot for taxes. By creating separate cash reserves and giving each a clear purpose, you can allocate revenue effectively and prevent overspending.

Step 4: Put Savings Back Into The Business

Once you’ve controlled your spending, it’s time to figure out what to do with all your extra cash. The smartest business move would be to invest in growth. Put your savings into things that can help your business make more money in the future. A delivery business, for example, can use savings to buy new delivery vehicles, which expands their capacity to take orders.

You can also use savings to diversify your business income. Place money into stocks, bonds, or other securities. This way, if unexpected events cause operations to slow down, the business has extra income to turn to.

At the end of the day, it’s important not to let poor money management prevent your business from reaching its full potential. Through expense tracking, budgeting, spending control, and investment, businesses can take their income further and make a bigger impact.

Comments are closed.