Best Tips for Businesses to Manage Their Finances

Being an entrepreneur and running your own business is exciting. You get to turn your dreams into reality, and be your own boss. It also comes with less exciting day-to-day responsibilities, like managing your business finances.

Business money management can be difficult, but it’s crucial to the health and success of your venture. From unpredictable cash flow to tax deadlines that always seem to sneak up, it’s easy to feel overwhelmed by the numbers. But with a strong financial strategy in place, your business can build a solid foundation and grow confidently.

Whether you’re a new business owner or you have been in business for years, let’s discuss some business financial management tips that will help manage your business money more effectively.

We’ll cover the importance of financial business management, common financial pitfalls we see, offer some tips, and highlight when it’s time to bring in a trusted financial partner.

Why Financial Management Matters

You don’t want your business to be running month to month or struggling to grow. Being smart about managing your business finances is what allows you to make the right investments, and build a sustainable future. Even if your business is extremely profitable, you can still face troubles if you’re not properly managing and planning your finances.

Financial clarity is one of the most important tools a business owner can have. When you understand your numbers and projections, you can make better decisions. Without knowing the numbers inside and out, you’re left to guesswork. Most importantly, business money management is what will let you grow and scale your business.

Common Financial Pitfalls for Business Owners

Running a business is never without challenges, most of which relate to money. Proper business money management can help you avoid common pitfalls that many businesses fall into.

A few of the most common issues we see include:

Cash flow mismanagement:82% of businesses fail because of cash flow problems. Sure, some of that could be because businesses don’t have enough money coming in. More often than not, however, it’s because of cash flow mismanagement or poor budgeting.
Overspending on growth: It’s natural to want to invest heavily in growth. After all, who doesn’t want to grow their business? But many businesses make the mistake of investing too quickly in new hires, equipment, or marketing before revenue can support those investments. Investing in growth can be a bit of a balancing act, but it needs to be done sustainably.
Neglecting taxes: Waiting until the end of the year to think about taxes is not a good idea. It can lead to missed deductions and unexpected liabilities. Keep in mind that small business owners generally need to pay quarterly taxes.
Disorganized bookkeeping: Using outdated tools, or worse, none at all, makes it hard to accurately track income and expenses. Disorganized bookkeeping has several downstream consequences on businesses (for example, the first two items on this list). If it’s something you struggle with, consider hiring a CPA or Certified Financial Planner™ to handle your business bookkeeping and set you up for better cash flow management.

At best, these kinds of problems are frustrating. But at worst, they can seriously slow down your growth or even put your business at financial risk. Fortunately, with the right foundation you can avoid them.

Building a Financial Foundation

Getting your business finances in order can be overwhelming but starting with these basics can help. Before we get into our tips, let’s take a quick look at how to build a strong financial foundation.

1. Create a Realistic Budget

Build a monthly and annual budget based on historical data and realistic forecasts. Make sure to account for recurring business expenses and a buffer for unexpected costs. If you operate a seasonal business, you’ll also need to forecast for your low season.

2. Track Cash Flow Weekly

Cash flow is the lifeblood of your business. Monitor what’s coming in and going out on a weekly basis so you’re never caught off guard. This also helps you spot opportunities to improve collections or cut unnecessary costs.

3. Use Reliable Tools

Spreadsheets are great but you don’t need to rely on them alone. Accounting and financial management software like QuickBooks, Xero, or Wave can help you track income, categorize expenses, and generate financial reports. For more complex needs, platforms like LivePlan or Fathom can assist with forecasting and scenario planning. If you’re considering using accounting software, PC Mag has a great roundup of the best accounting software for small businesses.

Tips for Businesses to Manage Their Money

Budgeting and tracking cash flow are the minimum in regard to business financial management. Once you’ve built that foundation, consider implementing our other business financial management tips below.

Separate Business and Personal Finances

It’s more common than you may think for business owners to blur these lines. It may seem harmless to use the same bank account and credit cards for business and personal expenses, but it makes business financial management and tax more complicated than they need to be. Mixing personal and business finances can even have some legal implications which you definitely want to avoid.

Keep an Emergency Fund

Speaking of business and personal finances, keeping an emergency fund is something that applies just as much to your business as it does to your personal finances. Contributing to an emergency fund will reduce a lot of the stress that comes with running a business. You’ll be able to rest easy knowing your business is prepared to weather economic downturns or slow seasons.

Make a Habit of Reviewing Financial Reports

Your financial needs will evolve as your business expands. This should be easy to handle provided you’ve been keeping organized books and budgeting properly. Set aside some time to review your business’ financial reports monthly, quarterly, and annually. By doing this, you’ll be able to make better-informed business decisions, like deciding where to invest and if your current budgeting is still working for you.

Plan for Retirement Early

Maybe you’re planning on your business being your retirement nest egg, but even still, it’s wise to diversify. Explore retirement plans designed for business owners, like SEP IRAs, Solo 401(k)s, or Simple IRAs, and contribute consistently.

Prepare for Business Transitions

Whether you're considering bringing on a partner, selling your business, or passing it down to family, transition planning should start years in advance. Financial planning and valuation guidance are essential parts of that process.

Review Your Tax Strategy Early

One of the biggest missed opportunities we see at Chatterton is waiting until tax season to think about tax planning. Don’t fall into that trap. By reviewing your finances in Q3 or early Q4, you can still make strategic moves, like accelerating expenses, deferring income, or contributing to retirement accounts, that reduce your tax liability before the year closes.

Know When to Work With a Business Financial Planner

Unless you’re an accountant, handling your business finance management yourself will only get you so far. There will inevitably come a time when you’ll need outside help. When you reach that point, it’s best to work with a business financial planner who can handle integrated financial planning. That way you can focus on your business where your expertise will have the biggest impact.

A business financial planner can help you understand your financial statements, plan for long-term growth, and identify risks and opportunities.

Take the First Step Toward Financial Confidence

Knowing how to manage your business finances comes with the territory of your running a business. It requires using the right tools and planning. But it doesn’t have to be stressful. If it does, it’s time to seek expert support.

At Chatterton & Associates, we help business owners manage their business finances with integrated planning. We handle bookkeeping and accounting, provide guidance, and regularly review your tax returns.

If you’d like to learn more, you can read about our business financial planning services or schedule a consultation.