How To Make Sure Your Small Business Never Runs Out Of Money

Financial intelligence can be fully described by one word, and that word is frugality. And frugality is defined as:"The wise use of our resources."


Though resources can mean many things, there is no greater resource in your business than money.Therefore, the wise use of money, will determine the financial stability of your small business and the foundation for its success.


The key to frugality is the ability to make consistent wise decisions about money in your business. This is why if an individual cannot make wise financial decisions in their personal life, they will not be able to make wise financial decisions in their business.

Yet even the best of us can make mistakes from time to time. This is why it is crucial when managing your business' finances that you establish financial controls to help you wisely manage the flow of cash in and out of your organization.


Here are 4 financial controls that will help you make sound, financial decisions that will help you to never run out of money in your small business.

1. Financial Guidelines

Financial guidelines are designed according to the business' values, and meant as guides to help you avoid making financial decisions based on impulse.

They are best established in the early stages of your business, when you have done your research and gotten advice as to the best use of the money in your business. In other words, after you have established your financial plan.

The worst time to establish financial guidelines is when you are about to make a major financial decision because so many other influences (emotional, physical and mental) are fighting for your attention.

Here are some sample financial guidelines you can use:

Take care of financial needs (what is necessary) before spending on financial wants (what is desired). Financial needs includes fixed and variable costs and reserves. Financial wants includes anything that is not necessary to effectively operate the business.

Renegotiate vendor and debt rates and terms every quarter or every year.

Evaluate your business every 90 days to identify waste that creates expense.

If you must cut expenses, do it quickly - yet reduce waste first and payroll last.

Before you spend always negotiate a discount, and train staff to negotiate discounts and to utilize coupons, rewards, etc.

2. A Financial Budget

Another useful financial control is the financial budget. The budget is similar to a personal budget in that you have determined beforehand how much you will spend in different areas of your business.

I cannot reiterate the importance of establishing a solid budget every year. Just like business values, if the budget is not concrete it will be subject to change by your whims and emotions.

The budget is like the railroad tracks that allows the train (your business) to get to its destination. If the business goes off budget the result is the potential derailment of the train; along with the potential for the train's destruction (a.k.a.: bankruptcy).

The budget will be subject to change, but you must be diligent and obstinate in your attempts in maintaining the budget, because no one else will.

3. Spending Schedule

Another financial control would be to establish a financial spending schedule. A financial spending schedule is used to help you decide where to allocate your money when you make it.

Think about it. If your business received a lump sum of money, where would you spend it? What are your guidelines to determine the best place to put that money?



A spending schedule will include setting up necessary financial accounts such as: cash reserves; maintenance and repair, research, development and growth; employee incentives; miscellaneous expenses; charity; investments; etc.

4. Debt Strategy

A sound debt strategy is useful to prevent the business from being dependent on debt, being overburdened by debt and creating potential liability for the organization.

In my opinion the best debt strategy is to avoid debt at all costs. Yet it has its uses. If you are going to use debt it must be managed wisely.

The idea is to set certain guidelines to keep the organization at a certain standard in its attitude toward debt.

An example of a typical debt strategy include:

Only use debt if you already have the money you need in the bank (also known as strategic financing).

Re-negotiate loan and credit terms and rates on a quarterly, semi-yearly or yearly basis.

Measure the amount of debt you need to maintain the best financial and organizational position (consider taxes, leverage, etc.).

Never utilize debt out of necessity, but out of strategy.

If you add these 4 controls to your financial system, they will keep you from running out of money - and will provide you enough cash flow to operate your business in a healthy and successful way.