SMALL BUSINESS FINANCIAL: How to Fund & Manage Small Business Finances

Small Business Financial Management
Photo Credit: Small Business Bonfire

The financial management of a small business is crucial. Whatever the size of the company, sound financial management is the cornerstone of all successful enterprises. Even successful and potentially lucrative companies won’t succeed without it. Any successful company can fail if its finances are not managed properly. This handbook for handling the finances of a small business should be useful for those with little background in business finance.

Manually keeping track of all the billing, financial reports, data collection, document storage, and compliance is time-consuming and error-prone. Cost savings and task automation are possible with business accounting software. Today, there is a wide variety of small business accounting software, but finding the right tool to manage your company’s finances can be challenging and time-consuming. Financial advisors can be particularly beneficial if you lack experience. 

Small Business Financial 

Running a business involves more than just having a good idea. To run a successful small business, you must manage your finances effectively. You’ll be able to make decisions about how to manage the fish, or all of the money you make and spend, once you have a solid understanding of how small-business finances work. This entails more than just launching a low-risk business.

This means that having sound financial management skills gives your company a chance to thrive. Having strong financial management abilities will enable your business to survive market competition and a volatile economy. You should be cautious when making financial decisions at the start of your small business operations. Being knowledgeable about various financial aspects should be your priority as a business owner.

It is important to comprehend financial statements to fully comprehend any reports that are pulled up about your financial situation. This will make it simpler for you to understand where all of your income is coming from and going, as well as where and how it has changed.

Small Business Financial Management 

The broad definition of financial management includes meticulous record-keeping, exact forecasting, the creation of financial statements, and securing business financing. One of the first steps in sound financial management is opening a bank account for business expenses like payroll. Other initial steps include developing a budget and using lines of credit. Managing finances effectively is crucial because it benefits the company.

  • Recognize and appreciate its profit
  • Make choices regarding the scheduling of inventory and pricing 
  • Identify whether it has enough cash flow to fund operations and make decisions about purchasing assets.
  • Deliver the financial reporting that banks and investors require to make loans to or investments in the company.
  • Perform sound financial analysis to improve business projections and forecasts.

Common Small Financial Management Challenges

#1. Budget Management

 Being an entrepreneur is not an easy task. There is frequent economic uncertainty on top of having to make payroll, pay for health benefits, and understand a complicated tax code. The only way to eliminate some of the uncertainty, assist you in planning for unforeseen events, and support you in making strategic decisions, such as when to expand or hire new employees, is by creating and maintaining your budget.

#2. Keeping Up With the Bills

Possessing effective financial management will enable you to carry out your business obligations. As a result, your credit is improved and you avoid paying too many fees. Your history of timely payments accounts for up to 35% of your credit score.

#3. Obtain Funding

Poor financial management, which also leaves you with bad credit, is what prevents you from getting bank financing. This can impede growth by preventing you from seizing business opportunities when they present themselves, such as investing in new equipment that could increase your revenue. Finding financing is difficult, takes time, and requires knowledge.

KPIs and Metrics for Financial Management

#1. Profitability

The income statement, also known as the profit and loss (P&L) statement, aids a business in understanding its overall profit or loss for a specific time frame. Take advantage of the data in this statement to calculate profit margins like the gross profit margin, operating profit margin, and net profit margin.

#2. Efficiency

Some metrics evaluate how effectively your business uses its resources and assets to produce revenue. You’ll need data from your income statement and balance sheet, which are snapshots of the assets and liabilities of your business at a particular point in time, for these metrics.

#3. Solvency

Your company’s solvency, or capacity to repay its long-term debts, can be ascertained using the cash flow statement, which tracks the amount of money coming into and leaving your business. When operating cash flow is calculated, it will show how well the business can pay its current obligations.

Small Business Financial Management Tips

#1. Set up a Budget

Keep track of your monthly spending and contrast it with prior months’ spending. When you become aware of potential problems, put plans in place to deal with things like excessive spending or a lack of capital.

#2. Set up Reliable Bookkeeping

Open a distinct business checking account, as necessary. At a minimum, reconcile your accounts once per month. Track every sale using register tape, invoices, a sales book (or software), or a sales register. Deposit every sale, and connect deposits to sales records. Avoid making cash purchases. For every expenditure made on behalf of the company, use a business debit card or a check.

#3. Get a Credit Card for Your Company

It’s simple to track and keep an eye on spending when expenses are charged to a business credit card. Numerous business credit cards also offer benefits like cash-back rewards and interest-free financing for 60 days.

#4. Purchase Financial Management Tools

These solutions contain essential formulas and reports that can automate procedures for invoices, financial reports, data collection, document storage, and compliance, saving time and lowering the likelihood of mistakes.  

#5. Keep Personal and Professional Finances Separate

You must make sure to keep your finances and those of your small business separate while operating your business. Separating the two gives you greater accuracy and transparency because personal expenses won’t be reflected in your business accounts, which won’t interfere with your revenue projections. 

#6. Automate With Software for Managing Small Business Finances

The entire financial management process can be automated with some small business finance software. Additionally, these business finance tools free the financial team members from tedious tasks and provide better insights into the company’s cash flow and financial performance.

#7. Track Your Spending

Overspending has one of the biggest effects on the finances of small businesses. Start by exercising financial restraint and only spending money on necessities. You can find areas where you can save and invest more money in your company by keeping track of your expenses.

Best Small Business Financial Software

A company’s earnings and expenses can be tracked using tools in small business financial software. The best accounting programs for small businesses provide a variety of reports that let you assess the financial health of your company as well as dashboards that give you a quick overview of important financial factors like accounts payable, receivable, historical sales information, and cash flow.

#1. Quickbooks Online

For small businesses, it offers four different plan options, plus a different choice for self-employed users. Both new and established small businesses can benefit from the features that are offered by each. Additionally, QuickBooks Online enables you to design unique invoices and forms so that your business’ branding is always prominent in client communications. 

#2. Xero

Xero is among the most widely used accounting programs for small businesses. This software has a straightforward user interface and completely integrates with a different payroll service. Through the integration of Xero with Stripe and GoCardless, companies can accept payments from clients online. For $13, $37, and $70 per month, respectively, Xero offers three monthly subscription tiers along with a full-service payroll add-on. A 30-day free trial is available from the business. When looking for an accounting program with payroll features, small businesses should consider Xero. Businesses that require project tracking and are experiencing rapid growth should think about using the software. 

#3. Freshbooks

In contrast to other accounting software, FreshBooks offers a greater variety of customization options for invoices. Although sending, receiving, printing, and paying invoices is its main purpose, it can also take care of a business’s essential bookkeeping requirements. Sending proposals, keeping track of project time, and receiving payments are all made simpler for service-based businesses thanks to this accounting software. The four packages are Lite ($17 monthly or $183.60 annually), Plus ($30 monthly or $324 annually), Premium ($55 monthly or $594 annually), and Select, which is a special service with special pricing. These are the full costs, with no discounts. 

#4. Netsuite 

NetSuite’s accounting software is all about automation, which can be a huge time-saver (and stress-reducer) for businesses. There are many features that can be automated, including statement reconciliation and the creation of journal entries. When it comes to automating as many accounting tasks as possible and for businesses that require help with financial compliance, NetSuite accounting software is a good choice. 

#5. Zoho Books 

Accounts payable, accounts receivable, and inventory management features are available in the online accounting program Zoho Books. The invoicing software is blazingly fast, and the bookkeeping software offers a ton of features at a fair price. In addition to being a great substitute for more expensive options like QuickBooks Online, Zoho Books can also handle all of your company’s needs. Free for companies making less than $50,000 annually in revenue; monthly fees for paid plans begin at $15; the free trial period is for 14 days. 

#6. Wave

Wave Financial is a good option if you’re looking for cost-free accounting software. It provides numerous valuable, top-notch accounting features for no additional cost to you. In addition to not having to license any software, there are no monthly or yearly fees. The cloud-based accounting software enables you to create and plan recurring invoices and payments, as well as set up automatic payment reminders and sync with your bank, credit card, and PayPal accounts. Additionally, it enables you to generate financial reports and offers you an unlimited number of connections to and transactions with accountants. Almost all functions of high-end accounting software programs are available in Wave Accounting, including payroll, expense management, and invoicing.  

Small Business Financial Advisor

A small business financial advisor is a specialist who can assist you in making the most of the capital required to launch and maintain your company. Any business owner can benefit from the assistance of a financial advisor. Since your company’s finances are concerned, you’ll want to make the best choices you can. In addition to creating a financial plan you can stick to for the duration of your business, they can assist you in making wise financial decisions for your company. A financial advisor can provide a small business owner with a variety of services, including:

  • Spending and saving strategies.
  • Tax obligations.
  • Accounts to use for running your business.
  • Managing cash flow.
  • A study of profits and losses

Benefits of a Small Business Financial Advisor

#1. Saving Time and Resources

You constantly change roles as a small business owner because you are managing it all alone. You might soon be researching a brand-new marketing strategy. The business might then encounter problems with customer service after that. There are so many things to do that it is impossible to pay attention to everything. A financial advisor will help you make a plan for how to use capital and will help you keep the flow of capital going while you are running your business operations.

#2. Save Money

Many small business owners may overspend in some areas of their businesses without even realizing it. A small business financial advisor will evaluate the financial health of your company and look for opportunities to cut back on unneeded spending.

Some financial advisors will become more involved in the management of the business, possibly by researching market trends. The performance of your business in a more competitive market will need to be evaluated by a professional. How quickly your company grows may depend on a variety of factors, including market expectations and technological advancements. 

What Is Small Business Finance? 

Small business financing is the process by which a prospective or existing business owner acquires funds to launch a new small business, buy an existing small business, or inject cash into an existing small business to finance ongoing or upcoming business activities. 

What Is the Most Common Form of Financing for a Small Business? 

Among the most popular small business loan types, term loans consist of a lump sum of money that you repay over a predetermined period. In most cases, interest is tacked on top of the principal balance, and the monthly payments are set in stone.

What Are 3 Sources of Finance Available to a Business? 

The principal funding sources are retained earnings, debt financing, and equity financing. Businesses use their retained earnings from ongoing operations to grow or pay dividends to their shareholders. Companies can raise money in two ways: going public (issuing debt securities) or taking out private bank loans. Companies receive equity funding by bartering ownership interests for funds provided by equity investors. 

What Is the Cheapest Source of Business Finance? 

Retained earnings are the least expensive source of funding because they do not cover the costs of raising money or paying back the debt. Retained earnings are the portion of capital that is already in the company, making them a less expensive source of funding.

How to Raise Money for Startups? 

  • Crowdfunding. 
  • Angel investors.
  • Bootstrapping.
  • Venture capitalists.
  • Microloans.
  • Small Business Administration (SBA)
  • Business Angels.
  • Assistant of Government

How Do Startups Get Funding?

There are numerous ways for startups to obtain funding, including business loans, personal savings, help from friends and family, venture capital, and startup grants.


The heart of your company’s operations is sound financial management. Your company won’t start up or move in the direction you want to go without it. Budgeting and purchasing accounting software for small businesses are the first steps. You will then know necessary to support the decisions you need to make to advance your business.

The health and success of your small business ultimately depend on how well you manage your company’s finances. Although it is strongly advised, hiring a small business financial advisor is not required. A financial advisor might inquire about your company in ways you weren’t even aware to do so. Above all else, a financial professional will contribute to your company’s improvement of its long-term financial stability. 

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