Managing Business Accounts
Financial management is an essential part of any business. For small and medium businesses, the good management
of business accounts plays a vital role in ensuring the long-term sustainability and competitive advantages of
the business by increasing capital and decreasing expenses. In this case, the business owner requires a basic
understanding of financial management and follows proper strategies to manage business accounts. By
following a few tips, the small and medium-sized business owner can ensure stable financial operation and
future of the business through strategic management of business accounts.
Managing Business Accounts
Separate Business Accounts: For SMEs, though it is not legally mandatory to have separate business accounts,
the business owner should maintain separate accounts for personal and business transactions. The business
owner should separate personal liabilities, expenses, taxes, and credits from those of the business so that the
owner can keep track of the actual financial condition of the business separated from the personal financial
condition and take actions accordingly.
Prepare and Follow a Budget: The SMEs owner should prepare separate budgets for personal goals and
business goals. Following the budget, the business owner will be able to allocate capital and resources
properly for different expenses. Thus, it will help to re-examine the initial budget and actual expenses and
compare with the revenues to understand the business’s profits or losses.
Monitor Spending: Along with following the budget to allocate capital, the business owner should monitor
business spending regularly. Any unnecessary and hidden expenses should be minimized such as multiple
bank accounts, overdraft fees, excessive office suffices and other petty cash expenses that can add up and
cause large expenses to the business.
Proper Accounting: Proper and systematic accounting is a must for any business to record and analyze the
financial transactions of the business in a financial period. For this, the small business owner can appoint an
accountant to have proper bookkeeping and financial analysis. However, since appointing an accountant can
be costly for a small business, the owner can use accounting software that can be used easily and reduce
business expenses.
Invest in Business Growth: Even though the small business should always reduce expenses, it should increase
investment in business growth. The business owner should constantly keep track of market conditions and
opportunities, changes in customers’ interests and choices, and adjust business strategies, products and
services through new investments. Moreover, investment in employee development, innovation, and
customer relationships can ensure sustainable business growth for small businesses.
Cash Reserve: The SMEs should have a cash reserve to cover unexpected or emergency expenses. Since it is
difficult and costly for small businesses to collect capital from banks, the business should have a cash reserve
ready at hand.
Managing Business Accounts
Pay Bills on Time: Late payment fees can be a huge cost for small businesses. For this, the business owners
should keep track of the payment period of accounts payables, business loan payments, credit card
payments, and business utility bills such as telephone, gas, electricity, etc.
Maintain Good Business Credit Score: For the growth and smooth operation of the business, it will need
additional capital, insurance policies, and good relationships with suppliers and customers. In this case, good
business credit ratings achieved by timely repayments of credits can help to get easy access to low-cost
capitals.
Manage Inventory: Inventory management including rent of the space, utilities, and inventory transportation
can cause large expenses for the small business. For this, the business owner should check on the inventory
time and costs and use drop shipping where applicable to reduce inventory management costs.
Increase Savings: The business owner needs to have a plan for savings and investments. Savings are essential
for business growth and expansion. For this, the owner should maintain a business saving accounts with
steady saving amounts and withdrawal limits.
Make a Frugality Habit: The small business owner should develop frugality and good financial habits that will
reduce unnecessary expenses of the businesses such as renting assets instead of buying, minimizing travel
costs, using high-cost finances, avoiding legal charges, etc. Moreover, the business should have regular
financial analysis and projections to plan budget and investment plans efficiently.
Keep Track of Account Receivables: If the business has a significant number of accounts receivables, it should
regularly check on the debtors so that credits can be collected in full quickly. In this case, the business owner
should send reminders to the debtors regarding the due amount and period. Tracking account receivables will
minimize bad debts and reduce business expenses. However, it is hard for SMEs to keep track and ensure that
account receivables will be paid when the business requires capital. In this case, SMEs can use invoice
financing under which the business can collect capital against their outstanding invoices from a financial
institute before account receivables are paid. For example, Lendo is a financial institution which provides
invoice financing services under which the clients can raise urgent cash from outstanding invoices and pay
back when invoices are paid. Thus, by using invoice financing, the small business owner can free up cash from
account receivables and reduce bad debts.
Therefore, small and medium businesses should have effective management of their accounts to ensure the
minimization of business expenses and maximization of profits. In this case, the business can use low-cost
financing sources and high-return investment opportunities.
Lendo is the first financial institution to introduce a peer-to-peer (P2P) invoice financing platform in SA that provides low-cost invoice financing services and offers different investment opportunities with returns up to 24% per year for small and medium-sized enterprises (SMEs). For more information about Lendo and its services click here.