As a small business owner, you may be a dreamer, an innovator or a thinker, but not necessarily a financial manager. Yet business money management remains to be an important aspect of your livelihood. It involves accounting, budgeting, payroll, etc. – things that keep your business going, like the oil that keeps a car engine running.
Despite the fact that financial management is a significant component of your business, your focus must remain on your core competencies, i.e. innovation and business growth. You need to focus on providing good products and services to your target market instead of putting time and effort into learning how to be an accountant. Therefore, outsourcing and automation are keys to small business money management success.
If you are a small entrepreneur who struggles with how to manage money in a business, here you can learn all about outsourcing and automation, money tools that will change the way you manage finances.
As a small business owner, you deal with money about ninety-nine percent of the time. Whether you are buying new equipment or receiving payment for a service you have provided, there is money involved. In fact, every decision you make as a small business owner will reflect a certain monetary value.
Hence, financial management must be effective and efficient. You need to familiarize yourself with the processes involved, even though you might choose to outsource or automate certain aspects of it. You need to have a basic understanding of these processes, such as the following:
Accounting is a systematic process. It involves tracking and recording of the financial transactions of the business through detailed statements. In addition, accounting deals with the process of summarizing, analyzing and reporting these recorded data for oversight and tax purposes. No matter the size of the business, accounting is a key process that every company has to perform. As the owner, you can hire an outsourced accountant or an in-house bookkeeper, depending of course on the size of your operations.
Also an important business process, budgeting is a form of financial forecasting that involves preparing a detailed statement of expected costs in a given future time frame. It gives you and your employees an idea of how to best achieve your business goals in the next month, quarter, year, etc. Even though this process involves anticipating future costs, it should not be a guessing game. You have to use previous data to forecast an appropriate budget for a given time period. The most common types of budgets that companies prepare include capital, operating, and cash flow budgets.
You have employees who perform tasks that contribute to the success or profitability of your business. In return for their work, you pay them a salary. Payroll pertains to business operations that deal with your employees’ salary. Aside from distributing an agreed upon wage during a scheduled payday, it also involves keeping track of bonuses and other items that may appear on their paychecks, as well as recording the total earnings of all your employees in a given fiscal year. You also have to take note of payroll taxes (i.e. taxes that are paid to federal and state taxing authorities such as FICA) and payroll processing (i.e. the preparation and distribution of paychecks as well as the payment of taxes).
Billing involves invoicing customers for services that you have provided or will provide. There are different ways to bill a client, but the three most commonly used methods include milestone, progress, and sub-line-item billings.
You can use milestone billing if you are providing a service that comes in stages. With every stage completed, you can send the client an invoice. This allows you to issue an invoice even before the entire project is completed or delivered. An ad campaign is an example of milestone billing; with every stage of the campaign (e.g. print, social media, TV, etc.), you can send a corresponding invoice to the client.
Progress billing is commonly used for recurring services. You can send the client an invoice on a regular basis, as agreed upon in your contract. For example, Netflix bills its clients every month for their subscriptions.
Lastly, sub-line-item billing is used to invoice a client for specific services that were incurred during a project. In this type of billing, the completion of the project is not required. Construction services are a good example of sub-line-item billing. Different contractors (e.g. plumbing, electrical, staging, etc.) send individual invoices to the client.
Cash flow analysis
Cash flow analysis is a subprocess of accounting. Its goal is to track the business’s sources of cash as well as how it uses cash. Aside from the amount, it also tracks the timing of each deposit/credit and withdrawal/debit. Putting it simply, this process involves the analysis of cash flow at a given time period (e.g. monthly, quarterly, semi-annually, annually, etc.). It does not show the business’s profitability but instead, it shows the business’s liquidity.
Expense tracking, or cost tracking, is an important business process because it ensures that your business’s funds are used correctly. It involves a historical record of all expense-related data, and it can be stored electronically, traced through a paper trail, or both. Expense tracking can be a tedious job to do manually, so you will likely need specialized software to automate the process.
Payments are made when a certain good or service is exchanged for cash or traded for another good or service. The amount or proportion of this exchange should be agreed upon by all parties involved before the exchange is made. Payments are not only paid by your clients to you but also you to your employees and suppliers. Therefore, it is a general term that encompasses any sort of exchange that is done by the business.
Outsourcing financial services
Now that you are familiar with the important processes of financial management, you have to assess your business operations and resources. Knowing that these processes are vital to the success of your business, you need to hire a point person to oversee them. The question is: Should you hire an in-house employee or opt for an outsourced service?
You have to remember the scale of your operations. As a small business owner, a full-time in-house accountant may not be the most economical solution. At the same time, taking on the responsibility is not in your best interest. Again, you have to focus on your core competencies, so you have to hire someone else to do what you can’t.
What exactly are the challenges here? You are trying to run a business, to make it grow, to fulfill the vision you have in your head. You cannot divide your attention between running your business and trying to learn and understand Accounting 101. You need someone to do this job for you, but you cannot shoulder a high cost by hiring from a huge accounting firm – at least not while you are still trying to build your business. Therefore, the key challenges here are time, expertise, and cost.
These challenges also present themselves in other aspects of financial management, not just accounting. What about billing and payments? You need to find a more efficient and cost-effective way of sending invoices to your clients and paying your employees and suppliers. Also, the method must be easy to master, so you can better manage your time and funds.
Having outlined the challenges that you, a small business owner, faces in terms of financial management, it is time to ask: What are possible solutions?
Small and mid-sized businesses or SMBs have turned to outsourcing for services that they are not ready to absorb in-house. While some may argue that outsourcing accounting services can still cost a lot for small businesses, you have to remember that you are also considering two other factors here: time and expertise. In other words, outsourcing, while it may not reduce costs significantly, gives you a comparative advantage in a more holistic sense.
A professional accountant has skills and knowledge about taxes and other technicalities in terms of financial management, so outsourcing one can help you prevent federal and legal violations. Moreover, for most businesses that offer products and services, accounting skills are not core competencies. In other words, if your outsourced hire somehow performs an error, it will not be critical to your business. Outsourcing gives you a good margin for situations like this; you do not fully absorb the repercussions of such errors.
By outsourcing an accounting service, you can also focus on providing better products and services to your clientele, improving customer generation and retention, and therefore increasing revenue and the potential for growth.
Aside from accounting services, you can also outsource payment and billing services, such as Paypal. However, when using this kind of service, the provider usually charges a percentage of the price to the seller, especially when the payment is a global money transfer. In the case of Paypal, the fee can reach up to 5% of the amount transferred.
As a small business owner, you might think that opening your operations to a global market is almost impossible with all the fees that cut revenues and potentially hinder growth. However, there are alternative methods and you can always explore options.
For instance, Veem is a money tool that aims to simplify global business payments. With Veem, you can send and receive payments from over 60 countries without wire fees. In addition, Veem does not charge fees for domestic transfers. It also offers its customers great foreign exchange rates, which can drive up your sales.
Veem solves all the challenges that were outlined earlier: time, expertise, and cost. You don’t have to go to the bank when receiving payments from your clients or transferring payments to your suppliers. You can also avoid bank delays and additional fees. The simple interface allows you to complete financial transactions without having to fill out long forms. It also ensures that you can master using Veem in a short amount of time.
As you can see, service providers like Veem make financial management a whole lot easier and cost-effective. You do not waste money on archaic payment methods. Instead, you can put the money back into the business, allowing you to grow and widen your market reach.
Automated financial solutions
Globalization is a word that you often hear in the business world during the last few decades. It is the idea that businesses and other organizations operate on an international scale – a global market.
You might think that a small business like yours does not have the proper tools to compete in such a market. You not only think about the costs that it would entail to operate on this scale, this magnitude. But you also worry about the “How?”
How can you properly transact with international clients? How can you ensure the security of payments and money transfers?
Technology and its increasingly rapid development over the last few years have allowed SMBs to transcend borders and widen their market reach. However, there remains a huge challenge that poses barriers to globalization.
In the recent years, certain countries have embraced a more protectionist approach in terms of international trade policies. Take the United Kingdom as an example; its decision to leave the European Union (EU) in 2016 – labeled by the media as Brexit – is predicted to affect the European economy significantly and negatively. The Centre for European Policy Studies (CEPS) predicted that Brexit will result to a 3.4% to 4.1% GDP loss for the U.K. by 2030. Meanwhile, the Center for Economic Performance (CEP) predicted a more dire outcome; their study showed that Brexit will result to a 6.3% to 9.5% GDP loss for the U.K in the long-run. Of course, it will also negatively affect the GDP of other member states of the EU.
What do these statistics imply?
Well, Brexit and its effects on the European economy set an example on how international trade policy restrictions can impact the global market. If countries continue to embrace such an approach, the global economy will suffer. Businesses of all sizes will be affected. It does not matter if you operate locally or internationally; you will feel the impact of these restrictions.
So how does technology help with this issue? With geopolitical barriers in place, and with countries considering a more protectionist approach in terms of international trade policies, what are tech leaders doing to help achieve a freer global market?
Most importantly, how do these issues affect you, a small entrepreneur, and what can you do to protect your business?
There is no doubt that technology has a huge influence on how the world operates today. Its effects are not limited to the business world – our daily lives are vastly different from ten or twenty years ago because of advances made in the tech world.
Technology’s increasing presence and relevance made it an important driver of the world economy. Government policies do little in preventing technological advancements from being pursued. After all, technology is the future.
So how exactly does technology affect the global market?
There are four ways that technology impacts businesses whether big or small: It 1) requires businesses to adapt to new digital skill sets and attitudes, 2) makes market entry easier, 3) enables new markets to thrive, and 4) speeds up data transfer.
Because technology is fast changing, entrepreneurs like you must learn how to adapt to these advances, especially ones that are related to your business. You have to keep up with current trends so you can stay in front of the pack. Luckily, there are always free seminars and training events that you can attend online. Take advantage of these opportunities so you can better equip yourself.
Entry to existing markets is easier now than ever before. Entrepreneurs can start their businesses with just a few clicks. The internet allows anyone who has a dream to open shop, even though they may not have the capital to open a physical store. Automated services also make it easier for business owners to transact with customers from all over the world. You will learn more about this later.
The internet has inspired innovators to come up with new products and services that did not exist a few years before. For example, subscription boxes such as SourcedBox and Loot Crate have been a trend recently. You can see internet influencers on different social media platforms promoting these services. As an entrepreneur, if you have a vision, you can bring it to fruition through technology.
Data transfer is an important aspect of any business because every transaction that you conduct with a supplier, employee or customer requires an exchange of information. In line with this, technology and the internet allow you to send and receive information in a span of milliseconds. An example of data transfer, and an important one at that when it comes to business transactions, is money transfer.
There are a lot of payment solutions for small businesses like yours. The company that we talked about earlier, Veem, is a good example of an automated payment solution.
Veem, in partnership with Quickbooks Online, has released a new integrated payment solution that allows small business owners to wire transfer their payments to international suppliers in over 60 countries without any fees.
This integrated system has the following features:
- Online multi-currency payments
- Payment tracking and reconciliation
- Payment progress tracking in QuickBooks Online
- Free international payments to over 60 countries
- Competitive exchange rates.
With these features, you can 1) automatically sync vendor bills in QuickBooks with Veem for international wire transfers, 2) get support from QuickBooks Online, one of the most popular financial software products in the market, 3) automate the international bill payment process through QuickBooks, and 4) eliminate double entries and allow bookkeepers to prepare payments on behalf of their clients for approval.
Veem’s integrated system will save you time and money because now you can conduct all your transactions in one place. You can send and receive payments in three easy steps:
- You need to enter your bills into QuickBooks Online.
- Payments from your clients will be automatically sent to Veem for processing.
- Payments to your suppliers will automatically post back into QuickBooks.
Another example of a secure automated financial solution is Xero. Xero is a cloud-based accounting software that allows you to access your financial data anytime, anywhere, and on any device. It currently has one million subscribers around the world, and with its free Mind Your Own Business (MYOB) conversion service, its customer base is continuously and rapidly growing.
With Xero, you can 1) send invoice to your customers online, 2) connect to your bank for a simpler bank reconciliation process, 3) store files and protect data with multiple layers of security, 4) update your inventory and adjust invoices and orders when necessary, 5) access your data on mobile devices, 5) pay your bills on time, 6) see your business growth through helpful charts, 7) track your expenses, 8) purchase orders and receive quotes, 9) compute sales taxes, and of course 10) accept payments from customers.
Like Veem, Xero also offers multi-currency services, which allows you to conveniently transact with international clients and suppliers.
Service providers like Veem and Xero allow you, a small entrepreneur, to thrive in a global marketplace despite stricter international trade policies. With these automated financial solutions, you can grow your business without worrying about additional fees, long forms, and geopolitical barriers.
Starting a business is a difficult task. You need to build everything from the ground up. As the owner, you have to oversee every step of the process, even the ones (i.e. financial management) that you are not particularly an expert of.
But as you have learned, financial management does not have to be a challenging task. Small businesses like yours can outsource and automate much of your financial management processes with cloud-based accounting service firms and leading edge financial tools like Veem. Service as a software (SaaS) can revolutionize the way you handle business. It will save you time and money and allow you to focus on your core competencies and expertise, so you can provide better products and services to your customers and become a better entrepreneur.