In the U.S., half of all small businesses fail in the first five years. It turns out that 82 percent of the time, businesses have poor cash flow management skills.
Proper financial management is crucial if you want your business to survive, and managing your cash flow is just the start. There may be times when you’ll come up against a cash crunch that prevents you from buying materials, paying suppliers, and even meeting salaries.
Apart from basic bookkeeping, these money management tools and techniques can help you make it through cash crunches and enable you to keep your business running.
1. Activity-Based Costing
In most businesses, activities such as engineering or manufacturing have different assigned costs. These operations also have a direct association with a business’ products or services. Activity-based costing or ABC gathers data about these operating costs.
The ABC method allows you to see which resources, activities, and products are increasing your company’s profitability and which ones are contributing to losses. With this knowledge, you can then create a better budget and gain a better understanding of the expenses required to keep your company running smoothly.
2. Cloud-Based Accounting
Cloud-based accounting software is similar to your traditional setup. The only difference is, this software is hosted on remote servers and data is sent to the cloud to be processed and returned to you and other users.
Cloud-based accounting software gives you real-time insights into your business’ financial situation because you can access data from anywhere at any time on any device. In the cloud, your data is secure, so not only are you getting an easy-to-use, cost-effective software, but you can also be sure that you have a secure information storage space.
3. Payment Processing Software
Payment processing is one type of merchant services that greatly benefit small businesses. According to Merchant Card Advisors, with the help of payment processing, you’re giving your customers the option to pay online via credit or debit cards.
This method works by having the payment processor check the details from a card’s issuing bank and carrying anti-fraud measures against a transaction. Once details have been verified, the transaction can proceed.
This way your customers can successfully use their cards when transacting with you, while you gain more profit by allowing this payment method while ensuring security against fraudulent transactions. Overall, there’s less processing, interchange, and other fees.
4. Revenue Forecasting
Know if you can perform different activities and make important decisions for your company through a revenue forecast. Through a revenue forecast, you’ll have an educated prediction about how much money your company will likely bring in for the next year.
By forecasting your revenue, you can decide if you’ll be able to, for example, hire a new employee or launch new marketing campaigns. A forecast can also determine if you’d need or can afford to take out a business loan.
The more accurate and realistic your forecasting is, the easier it will be to stay on budget the following year.
These are only some of the ways you can manage your finances effectively. Though it can be daunting, especially for small business owners like you, keep in mind that you’ll continue to learn the best ways to manage your finances as you gain more experience in running your company.