Disclaimer: All of the following content are based on personal experience and are for educational and entertainment purposes only. None of the content and/or its related material(s) should be construed as medical, legal, or financial advice.

You started a business. Hurray! Your vision is flawless and you know this will benefit thousands of customers. You are excited to express your creativity, while serving others and your community.

Unfortunately, having a great product is only half the battle. The other half is the boring and mundane business stuff. This is where many fail and a few succeed even if their product is phenomenal. Besides creating and selling your product there are many other aspects of running a successful business that demand your attention - one of the most important is financial management.

Though less sexy than other parts of being a business owner, financial management is probably one of the most crucial. This is the lifeline of your business. Bad financial management will tank even a great business. A few examples include JCPenney’s, Circuit City, Blockbuster, and Radio Shack to name a few. Though some of those companies listed had other issues, financial management was a contributing factor.

And I know this is a little late, but in honor of National Finance Day, I wanted to explore a few essential tips to help you better prepare yourself for effective financial management for your small business.

Plan your Budget

First and foremost, as a business owner we need to sit back, relax and do a little planning!

Think of your small business as an extension of your personal life. We need to plan how much we need or will spend to make money. I know it sounds counter-intuitive, but the old adage, “you need to spend money to make money” has some truth to it. Recommend planning your yearly expenses when developing goals and forecasting sales. Review your past finances within your business (while also looking at what other successful entrepreneurs are doing) to get a more dialed down version of categories and expected amounts.

Create a Budget

Make sure to keep all personal and business transactions separate. Even sole proprietors must open a separate checking/savings account - business or regular personal account(s). The last thing anyone wants is to mix their personal and business financial records.

Use the old envelope system to help your budget. I would suggest adapting this to the 21st century. Use different checking/savings accounts as your “envelopes” to divide Income and Expense buckets. For a more in-depth understanding, I recommend reading Profit First, by Mike Michalowicz.

Control Expenses & Understand Revenue Data

Some expenses are uncontrollable. I get it. You need to buy raw materials, pay your employees, and pay taxes. However, there are other areas that are within your control. Do you really need to have a business meeting over coffee or lunch? Do you really need that extra pair of gold scissors in the office?? This also goes for anything you would need to buy to make products. Be cognitive of buying too much bulk material, as this will translate into increased business carrying costs.

Avoid impulse buys because you see it on the TV or your fellow shop owner bought one. What is good for their business may not work for yours. Quite often simple, cheap, and ingenious ideas can solve the issue. Understand the needs and wants of the business and take some time before buying those extra supplies or gadgets.

Setup Processes and Procedures

Just as you would set up processes for other areas of the business, make sure to have a process for your finances. How often will the financial data be reviewed? What are the financial goals? How will the data be captured, monitored, and analyzed? Make sure to have some type of bookkeeping system in place, such as excel sheets, notebooks, or an automated solution. Personally, we use Waveapps, but there are others like Quickbooks, Freshbooks, and Zoho Books. To better understand how the business is functioning make sure to review the data on a periodic basis. It is best to analyze the budget, financial reports, and metrics monthly if not quarterly.

Tax Planning

Taxes ARE a BIG DEAL in running a business. You don’t want the ‘tax man’ (or woman) knocking at your door because of unpaid taxes. Familiarize yourself with the federal, state, local tax regulations and associated schedule/deadlines. Consider consulting with a tax professional to enhance your tax strategy. A tax professional will know current tax deductions, new regulations, and possibly help build a tax strategy that supports your business.

Bad financial management can be a major contributor to a business failing. The opposite is just as true. Good financial management techniques can help make your business prosper because you understand your business better. Remember the K.I.S.S. method (Keep It Simple Sweetie). Don’t act like a large business with millions at one’s disposal, being overzealous and careless. Thus, planning and creating a budget that fits the nature and size of your business, in addition to controlling your expenses are a must.

I wish you all the best in your future endeavors. Remember you can do it. Be bold, brave, and smart on your entrepreneurial journey.