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.

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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.

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