#5 Financial Management Tips for MSMEs
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Financial management is one of the most important aspects of running a business successfully. However, in a bid to be a jack of all trades, MSME entrepreneurs often ignore their financial strategy and pass the burden on the accounting departments.
Now, the accounting department can probably file your taxes, make salaries, manage your P&L accounts, but what about a larger process like budgeting, forecasting, creating financial strategies.
SMEs need to invest in the CFO or entrepreneurs need to start investing time to manage their business finances. Considering, a small business cannot afford a CFO, here are a few tips SMEs should keep in mind while managing their business finances:
Personal Finance ≠ Business Finance
Entrepreneurs running a smaller business generally mix their personal and business finance by using one single bank account for all transactions. However, this habit is extremely unhealthy for business and for personal finance of the entrepreneur.
So first things first, create separate business and personal banking account. This will not just help you track your financial flow but also help you in raising business loans from banks and alternative lenders.
Financial planning is as important as business planning or marketing strategies and entrepreneurs need to pay attention to this aspect of financial management.
According to experts, entrepreneurs should work out a quarterly financial plan and review every month to understand the financial pulse of your business and plan a larger expense.
Never ever miss your payments or tax dues or loan repayment deadline. Arrears are likely to expect fines, which further adds to your expense and increase the cost.
Additionally, constantly missing a payment will add a red mark on your credit score, which will create issues while you need to raise funds for your business expansion plans.
Do you really need a PR agency or a new marketing agency? Is your inventory enough as per the current demand or can you save more money by buying a product in bulk? Can implementing a new technology save cost or do you really need to implement it?
Generally, MSMEs are bootstrapped businesses and hence, there is no one to question the entrepreneur decision. Instead of getting overwhelmed over a new product or a technology, entrepreneurs should question their decision and cut the cost to save money which could be otherwise invested in a better resource.
Modes of Financing
MSMEs generally struggle to get a bank loan and end up raising funds from informal channels, which in turn attract a higher rate of interest. Ideally, entrepreneurs should look at an alternative source from the formal system to raise funds.
MSMEs should educate themselves with a variety of business loans, such as factoring, collateral free, working capital and merchant cash advance that are available in the market. If your GST records are clean and business bank account statement is healthy, you can easily raise funds from NBFCs, alternative financiers or even P2P lenders.