Tips To Budget Your Capital Effectively

No matter what kind, type, or size of business you are dealing with, the one thing in common between all these is to know how to manage your working capital to ensure a continuous flow of cash at all times. Here are 10 quick and simple tips to help you manage your working capital.

  1. Know how to manage your accounts properly. All cash inflows and outflows must be recorded, tracked, and identified. In addition, all costs must be carefully reviewed in order to find the source behind every entry.

  2. Make short-term and long-term cash projections in order to anticipate and arrange for any future cash requirements.

  3. Be efficient in the process of invoicing. When it comes to invoicing, send out invoices after the arrival and departure of every goods & service, maintain a maximum term duration to clear payments, follow-up on every pending invoice, and cross-check payments with every invoice number to tally the figures.

  4. Do not mix business with pleasure or personal expenses. Hence, always maintain different accounts for business, private, and pleasure to keep away losses and tax calculations. Similarly, loans taken for personal and business needs must also be maintained separately.

  5. Always divide your profits wisely. Although it is natural that you take the first cut from the profits, ensure not to take it all. Always set aside some amount of the profits to meet unforeseen eventualities. Hence, maintaining a safety net from your profits is a good habit.

  6. While setting allowances for travel, food, and accommodation for self and for employees, always ensure to be frugal. Go in only for the necessities and not for extravagance.

  7. Always know how to handle other expenses prudently. For example, set limits for the fees paid to your firm’s lawyer, chartered accountant, auditor, and others. Alternatively, you can opt for other means of payment such as hourly payments or payment per case.

  8. Marketing and public relations dig a deep hole in the firm’s pocket. Hence, be cautious while planning out every marketing event and ensure to adopt a good marketing strategy that focuses on minimum investments but maximum returns.

  9. While thinking of business expansion, plan out a phase by phase expansion rather than going all in at one go.

  10. Always choose from the minimum cost alternatives such as whether to buy or to rent, whether to loan or borrow, or whether to invest or divest. Always prefer options that are cost-effective.

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