How to manage your business money

Does handling money in your business give you sleepless nights? If yes, here are a few tips to put you on the right track.

Separate your personal money from your business money
Remember this: You are not your business and your business is not you. In fact, you are considered two separate legal entities if you have registered a company. When your business makes money it does not necessarily mean that you have made money. If your business sells goods worth Shs3.5m, it does not mean you have personally made that money. Those funds will be used to pay for various business expenses such as raw materials, transport, rent and salaries among others. Business expenses should be your priority, not your personal expenses. In other words, your house rent is not a business priority. That said, because you use your time and skills for this business, you should be amongst those business expenses by paying yourself. Then from what the business pays you, you can pay your personal rent. Many of us claim we cannot pay ourselves – but we take money from the business for personal reasons in an ad hoc manner.

Have a reserve fund
This may be difficult at the start but in time, the business should be generate savings. This money is the business’ emergency fund. You can use this for actual business emergencies or to take advantage of certain opportunities that may come your way. This buffer will also help in temporary situations that could affect sales of your goods or services. You will be able to rely on that buffer to sustain the business instead of taking drastic measures. Also have an emergency fund for your own needs so that you do not raid the company account. From what the business pays you, save and set up for a rainy day.

Keep financial records well
No matter how big or small your business is, you must record everything that goes in and out, even if you started yesterday or the business is still a side gig. Many people run business by looking at their bank account instead of their accounting books. As one person told me, as long as they see money in the account, they know they have money to spend. However, they have no concept of how much money the business makes or loses in a given period. When you know how much the business has made in a month and you know how much it has spent, you will obviously know whether you are making a profit and if it makes financial sense to keep going.

Cash is king
Match your payments to receipts. You can boast about your revenues and even your profit but the tangible reality is cash flow. If you pay faster than you receive money, you might look profitable on the books, but you will not have cash to run the business. As you build your relationship with suppliers, get them to allow you to pay as you receive money. Whatever methodology you use, watch that cash flow and be wary of the imbalance between receiving money and paying out money.

Watch expenses
Resist this temptation to spend more than you make. Many businesses have found themselves in problems because of expenses that have gone out of control. Let business spending be about growth and not just because there is money in the account.

Waceke Nduati Omanga runs a programme on entrepreneurship at Centonomy.