5 Things Every Entrepreneur Should Know About Managing Their Finances

financial management

Self Employed is a proud title for any successful entrepreneur, but it also means that your company is your primary source of income. In this situation, every financial decision the company makes, you make as well.

With this deep personal investment in the financial health of your company, there are a few things you should always keep track of that will serve as major indicators of success and growth.

In order to understand how money moves through your company, track your expenditures and sources of income, overhead costs, and money saved on business-to-business trades.

The best way to do this is by properly managing company data and getting detailed reports from your leads and department heads. If you’re a solopreneur, then it’s even easier as you’ll just need to be sure to track your own data and assess it. Staying organized and knowing what every dollar is doing is essential.

 1 Money In

Just as a company structure with no customers is inert, one that makes money is alive.

Where your money is coming from functions as the life source of your organization. With most businesses, money comes from sales, subscriptions, and service fees.

Non-profits and similar programs might also be bringing in money through donations, partnerships, or federal grants as well. These sources are all vital to how your company runs and the financial decisions it should make.

Each source should be valued and optimized. Products that are selling quickly can be promoted, and more options created for them while products that remain in stock too long can be sold at a discount to increase their effective income generation.

2 Money Out

“It takes money to make money” is an old truism of business. You must produce the products you sell, either in a factory or with programmer hours.

Commercial space must be bought or leased, staff must be paid, and insurance purchased to cover every practical eventuality. Most companies require regular peripheral services like shipping, deliveries, catering, and specific orders for projects like computers and replacement parts.

Every item your company pays for is another slice of the budget available to run the business and make a profit.

3 Overhead Costs

These expenses are common but not completely predictable business costs. Everything from phone bills to table napkins, there are hundreds of little things a company has to pay for and can add up to a huge chunk of the budget.

When calculating the overall expenditures of the company, every one of these costs matters. While the big ones like legal fees will be hard to miss, don’t forget to look at the details of everyday procedure. Are the lights left on at night? Are you using floor matts that wear out much faster than a slightly more expensive model?

There’s no limit to the budget optimization that can be done when trying to find the perfect balance of efficiency and forethought in your overhead costs.

4 The Value of Trades

Often, businesses who work together or in adjacent industries can help each other with practical trades of goods, services, and courtesies. These trades can include many variations, from lending equipment to sharing LTL (less than load) shipping deliveries.

This kind of deal often stems from good relationships between businesses that share a building or block. If your company is in one of these friendly business-to-business agreements, the value of that trade should be calculated when considering the financial health of the organization.

5 Detailed Reports

All of this vital information is available, but you may need to gather it if employees have been keeping their own notes rather than using a centralized data system. If you’re a solopreneur you will need to make sure you have systems setup to capture that data so you can assess it.

Some details, like the business-to-business deals, will be harder to clearly document but are just as important. With the right policies and organization, your leads and department heads can create regular detailed reports to submit to you or your financial manager.

With your business at the center of your financial life, your investment in its financial health is absolute. By tracking these key factors of your company’s income and expenses you can not only fulfill your obligations as an entrepreneur but also gain a deeper understanding of how to optimize your entire budget.

Related: Lessons for wealth that stand the test of time

You might also enjoy:

Recommended Posts