Small businesses exist for many reasons, but they all share 3 common purposes:

  • They must be worth pursuing, as envisioned by the person or persons starting them
  • Once pursued, they must continue
  • To continue, they must earn a profit

For a small business to succeed, it must have proper, professional small business financial management.

What Is Small Business Financial Management?

Small business financial management is the practice of helping fulfill a business’s purpose. It can be done well with a few steps.

Tips for Successful Financial Management

Get the Numbers Right

Proper accounting and bookkeeping can be difficult and time-consuming. An organized set of books and financial records is crucial. The process of keeping your numbers straight includes:

  • Determining the proper business form (C Corporation, S Corporation, Partnership, LLC, Sole Proprietor)
  • Creating and implementing an appropriate system of accounting and set of books
  • Monitoring the process on an ongoing basis

Small business success starts with the correct numbers.

Organize the Numbers

Successfully fulfilling a small business’s purpose requires the preparation of internal and external reports periodically based on the users’ needs.

The language of business is accounting – the documentation and categorization of financial activity in a consistent format generally accepted by all interested parties. Interested parties include internal users (owners and management) and external users (lenders, investors, and government agencies).

The most common internal reports are tailored to the needs of management to help them make sound financial decisions. Examples of internal reports include:

  • Operating budget
  • Budget versus actual variance reports
  • Cost reports
  • Daily cash flow
  • Profit by location, activity, or division

The most common external reports are:

  • Income Statement (Profit and Loss)
  • Balance Sheet
  • Statement of Cash Flows
  • Tax Returns

What Do the Numbers Mean?

For a small business to succeed, its owner/manager must know how to read, speak and interpret the language of business. An experienced, objective Certified Public Accountant (CPA) is essential to this process. 

How Do CPAs Help?

CPAs can develop a step-by-step approach that helps business owners address concepts such as:

  • Acquiring capital – devising and implementing procedures for obtaining enough capital to purchase assets that will contribute to income production. (Most small businesses fail due to a lack of proper capitalization.)
  • Preserving capital – devising and implementing a solid internal financial control system to help ensure capital preservation.
  • Maximizing profit – once the business generates income, small business owners must develop, implement, and monitor strategies to maximize profit, the crucial element in a small business fulfilling its purpose.
  • Managing cash flow – small business owners and CPAs devise, implement, and monitor strategies to manage the cash flow generated from profit. (Profit and cash flow are two very different things and, thus, require different kinds of management.)
  • Maintaining a strong financial condition – With a CPAs help, owners/managers can ensure the small business keeps a strong financial situation so that obligations do not consume assets and capital. The business must remain healthy to continue to earn profit.
  • Legally minimize taxes – taxes can be lessened through proper, proactive tax planning and compliance. An unforeseen tax issue should never surprise a small business.
  • Strategic business, tax, and technology planning – the process of periodic planning are invaluable to the ongoing success of a small business. Owners/managers must constantly evaluate plans to avoid becoming obsolete and ineffective.
  • Sale of the business – at some point, most small businesses fulfill their goals. Planning for the discontinuance or sale of the business and its proper valuation should always be a consideration.

Small Business Financial Management Essentials

Most small business owners/managers are understandably preoccupied with day-to-day operations. They can’t always devote the necessary time to financial functions.

These functions are crucial to a small business’ success. Big companies pay large sums to hire full-time Controllers and Chief Financial Officers to address these functions.

Most small businesses don’t have that luxury. However, they can engage an affordable, experienced, expert professional, such as a CPA. A CPA helps companies to fulfill their purpose through proper small business financial management.