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How small business owners can better manage their money

A fashion e-commerce retailer reviews her finances using a laptop.

In a small company, every dollar counts. Virtually every small business owner thinks about money most of the time. But that doesn’t mean we all manage our money very well.

To make matters more stressful, many of us who run small companies don’t particularly like dealing with numbers. Math and finance weren’t necessarily our strong suit, and when it comes to thinking about money, we have to think about numbers by default.

But here’s the good news: you don’t have to be a whiz with numbers or a financial genius to deal with money and run your business successfully. Over the years, I’ve developed many strategies to help you master your company’s finances, even if you’ve never been good at budgeting, managing your bank accounts, or math!

Here are my top 10 money management strategies and outlooks:

Cash is king

If the three most significant things in real estate are “location, location, location,” the three most important things in business are “cash, cash, cash.” By ‘cash,’ I don’t mean physical greenbacks—I mean money in your bank account rather than invoices in your accounting system.

Over the years, I’ve learned this lesson the hard way about income: “It’s not my money until the cash is in my bank.” I’ve been excited about making big sales to BIG customers only to see the deals fall through—even though I may have had a contract. Am I really going to take a Fortune 500 company to court? And if a Fortune 500 company can cancel a deal—or take 120 days to pay—how much more likely is it that a smaller business will do the same?

Many small businesses—especially in professional service industries and construction—perform their work, then invoiceInvoiceInvoicing is the process of billing your customers by issuing an invoice to them for goods sold or services rendered. clients. It can take months to get paid—which also increases the likelihood that they won’t get paid at all.

Instead, require partial payment before beginning work (as a ‘retainer’) and also ask for interim payments as work is being performed. Find ways to avoid invoicing clients or customers and instead get paid immediately (see #4).

Payment flow

Manage your cash flow

For many small businesses, cash flowCash flowCash flow is the amount of cash (or cash equivalents) that goes in and out. When more cash is coming in than going out, it’s known as positive cash flow. When the outgoing cash exceeds the incoming cash, it’s called negative cash flow. is more important than profits. One of my first clients was a florist that had a few big months of sales every year—February Valentine’s Day, May Mother’s Day, and June weddings. Those months brought in a lot of cash, and they were flush in spring. But in fall and winter, they had a tough time paying their bills. At the end of the year, on paper, they showed a “profit,” but they were stressed most of the time, and the future of their business was in peril.

What are some good ways to manage cash flow? Read my next two tips.

Credit is queen

Most small businesses hate being in debt. But having good credit—and using it wisely—is an important tool in your management toolbox. Don’t get overloaded on debt, but don’t be afraid of it altogether.

One of the best ways to manage cash flow is to get a line of credit (LOC) from a bank or credit union. This enables you to access funds when you need money, then pay down the LOC in full when you receive payment for services performed or goods received. Having and managing a LOC also helps you develop a good relationship with a bank and a banker, which can come in handy when you need other kinds of financing, such as a small business term loan.

Accept credit cards for immediate payment

I’m always frustrated when I see a small business that sends invoices to clients but refuses to accept credit cards for immediate payment. Why wait 30, 60, 90 days to get paid when you can have that money in your bank within days? Worse, why risk not getting paid at all? Even if yours is a professional service (I’m talking to you lawyers, accountants, consultants), require or request credit card payment instead of billing. If you worry that this seems ‘unprofessional,’ realize that this is a changed world. Clients have become used to paying as they go for such services.They often prefer to use their credit cards so they can manage their own cash flow or get benefits credit card companies offer.

Send out your invoices quickly

If, in fact, there is no way to avoid sending invoices to clients or customers, get those invoices out fast. Many small business owners wait until the end of the month (or even later!) before sending out their invoices. That’s a guaranteed way to hurt your cash flow. Get invoices out as soon as the order is fulfilled or the work is performed.

Get help

What to do if you’re so busy you can’t stay on top of doing it all yourself? It’s far better to hire someone to send out invoices for you once a month, or even once a week, then not to send out your invoices until six months after you’ve done the work or delivered the goods. And it’s better to hire someone to help you pay your bills than to let your bills go unpaid and incur hefty late fees and penalties.

There are also many affordable and powerful online tools that make it faster and easier to stay on top of your finances.

Move your financing systems to the cloud

There are myriad reasons to use online money management applications rather than keeping your finances on local devices. (You don’t still use paper and pen, do you?) Having your data in the cloud means it’s accessible to you wherever you are, you have instantaneous backup so you never need to worry about losing your data, you can access your data if your premises or devices are damaged, and you get powerful tools that make money management easier. Even if you pay a monthly fee for such systems, you’re better off than with desktop applications.

Separate your business and personal expenses

Many self-employed and very small businesses just use personal bank accounts to manage their business bills and income. After all, it may cost you a small amount of money each month to have a ‘business’ account with a bank or credit union. But if you’re serious about your business, treat your business seriously. 

Get a business bank account. Use separate credit cards for business and personal expenses. This not only makes it easier to manage your accounts, especially come tax time, it helps keep you out of financial messes. 

Moreover, without a business bank account, you may not be eligible for some kinds of assistance if there’s an emergency. During the Covid pandemic, many banks would only process government aid to clients who had business bank accounts.

Defer payments

There are two ways to keep more money in your bank account—get paid faster and delay payments. While doing everything you can to get cash in your bank account sooner, find ways to delay depleting that stash for as long as possible.

Of course, these ways should: 

  1. Be legal and honest
  2. Not be costly (in terms of fees and interest) 
  3. Maintain good relationships with your vendors
  4. Not hurt other small businesses 
  5. Not keep you up at night worried about an outstanding bill 

Fortunately, there are a number of ways you can do this.

First, ask vendors for better payment terms when paying early or to make installment payments over time. If you ask BEFORE you make the purchase, you’ll have more negotiating leverage, or if you have an existing relationship with a vendor—you may get results. In my publishing company, years ago I had a book printer who extended me 120-day terms, which was unheard of in the printing business. But I had a long-term relationship with them, sat down and told them about my customers and my business plan, and, most importantly, always paid my bills on time.    

Another way to delay payments is to pay by credit card. This automatically provides you with approximately 30 extra days to make a payment. That means you keep more money in your bank account for about a month. You might also get credit card “points” and cashback that you can use—not just for airline miles but to make necessary purchases. If you need longer time, of course, you’ll pay interest charges, but it will provide you greater cash flow flexibility.

Be smart about financing

Finally, if you’re trying to raise money to start, grow, or run your business, the best thing you can do is GO OUT THERE AND MAKE SALES.

Sure, there are a few tried-and-true sources of financing: using your savings, raising or borrowing money from friends and family, getting a loan, finding an investor. All of those have downsides–your financial security is weakened, you’re in debt, or someone else owns a piece of your business.

The best money for your business is money that comes from customers. That may seem obvious, but you’d be surprised at how many entrepreneurs spend months—even years—trying to raise money for their company instead of going out there and knocking on doors (or the virtual equivalent). The best way to learn if you’re on the right track in starting something new is to just get out there and try to land customers.

Stay on top of your finances

Managing your cash and staying on top of your finances is key to business survival. No matter how good your products or services are, if your money is a mess, your business is threatened. Fortunately, it’s now easier than ever to master small business money management.

Rhonda Abrams is one of America’s leading small business experts. Her business plan guide, Successful Business Plan: Secrets & Strategies, was named one of the 100 best business strategy books of all time. She has also started, built, and sold four businesses. She was educated at UCLA and Harvard University and lives in Palo Alto, CA.

*This guide is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.