Financial allocation is one area of running a business where it is easy to make mistakes and requires constant attention. Poor handling of finances is one of the major reasons most small businesses go under. You can keep that from happening to your company by following this guide.
Create a Budget
Forming a budget should be your first step because it provides a road map for what you will spend your money on. Monthly financials will let you know how close you are adhering to that budget, so you can make adjustments for the following month. At the end of the year, be sure to adjust your budget accordingly based on actual final totals from the current year.
Always be thinking about major expenses that you know will be coming down the pipe and adequately plan for them. For example, taxes. Many first-time small business owners get hit hard with their tax bills or don’t understand that they need to pay estimated quarterly taxes. Planning is important so you don’t figure you can pay two large bills and then have to make another major financial commitment, such as hiring a new employee. This will leave your business vulnerable to financial ruin if an unexpected expense comes up.
Save for Emergencies
Unexpected expenses have a nasty habit of popping up when you can least afford them. For example, major repairs, such as roofing repair, may be needed with little notice. This is why it is important to stash away all the money you can into reserves for when you need it. You also want to be able to afford contractors who will do a quality job as opposed to just taking the lowest bid.
All funds must be allocated in legal ways as well. For example, embezzlement or using business funds for personal gain should be avoided at all costs. You will want to set up adequate protections to prevent this from happening. Some measures you can take include running a criminal background check on all employees before they are hired, segregating employee duties and requiring executives to sign off on each other.
Allocating business funds appropriately is a challenge. Interdepartmental conflict may flare if one feels it isn’t getting the resources another does. In order to allocate your funds appropriately, you will have to practice good financial management and use your people skills to their fullest extent. But as long as you make the right decisions, your company should remain in good shape.