Many small- and medium-sized business owners face a simple dilemma on a daily basis. They are really good at producing and selling whatever it is their business sells, but they don’t have the knowledge to be good money managers.

Unlike larger corporations, these smaller businesses often face the challenge of money management on their own, or at least without the help of a huge team of financial professionals. As a result, money management can be pushed to the side as an ancillary thing instead of a focal point of the business.

No matter what their financial background, all business owners know there’s more to running a successful business than just creating and selling. To stay in business, you must be able to collect payments to create cash flow and manage all your accounts in the proper fashion.

Money management is simply the processes you follow to handle business finances. This includes setting goals, tracking your expenses and income, and budgeting. A good money management plan will help you make sure your business will churn out a profit, and also avoid time periods of negative cash flow.

Certain aspects of money management will also keep your business on sound financial ground, paying all your bills on time and well prepared for expected months of lower income, such as seasonal downturns.

Let’s take a look at some best practices for money management 

and six tips to help you on your way:

1. Create a budget

Step one to any money management plan is creating a budget. On this budget should be a list of all your expected income and all your expected profit. A business budget should be projected out as best as possible for an entire calendar year, and then broken down by quarter, month and even week. Plug essential services into the budget, as well as a forecast of your anticipated income.

Creating a budget will allow you to see times of the year when you might have extra money on hand to invest in new equipment, for example, or periods when money might be tight and purchasing might not be a good idea. Having a budget for the entire year will also allow you to make larger adjustments to your operations if need be so you avoid financial pitfalls.

2. Know when bills are due

After creating a budget, it’s time to know when all your bills are due. Create a chart, spreadsheet or any other form of tracking to know the due dates and amounts of all your recurring expenses. This could include business loans, credit cards and charges for services such as internet and phone. It’s important to pay bills on time to avoid late charges, extra fees and potentially even having essential services shut off.

3. Keep an eye on spending 

It’s easy to swipe a credit card or pull from a line of credit when you need to make a purchase to support your business. And while this isn’t necessarily a bad thing, it’s easy to get overwhelmed and break your budget if you’re not tracking all spending.

Every time you incur an expense, record it as a new line item. Even if the purchase is for $10, it’s still important that you get into the habit of tracking it. By staying on top of all expenses, you’ll have a better grasp on your business finances and avoid overspending.

4. Manage and track employee costs

Employees represent one of your biggest expenses. It’s important to keep the cost of your workforce as low as you can — without sacrificing quality, of course. In addition, it’s essential to have a good handle on all of your labor costs. The best way to do this is through a time and attendance tracking system. Appropriate software programs will ensure accurate employee tracking, making sure you pay out only what you should.

5. Stay on top of receivables

Landing a new customer is great, but if you don’t collect the money associated with the job, was it even worth it? While the volume of work can be a good indicator of how well your company is doing, you only reach a profit if you actually collect on the invoice you mailed or left behind with the customer.

That’s why it’s so essential to track and stay on top of your accounts receivable. You should aim to keep the number of days you collect money from your customers as close to when you issued the invoice as possible. 

There are plenty of accounts receivable tracking tools available. No matter how you decide to track it, though, you should ensure that none of your customers fall too behind on their accounts, and you should vigilantly pursue the money you’re owed.

6. Have extra cash on hand

No doubt there are periods when your business isn’t performing as well as it did at another point in the year. There are also times when you’ll fall short on the anticipated workload and collection expectations. When this happens, you might find yourself in a little bit of a pickle if you haven’t planned properly.

It’s good to have a reserve of cash on hand to use when the money isn’t flowing in as quickly as you need it to. Think of this as your rainy day fund. This extra cash reserve can help cover payroll and other expenses if you’re behind on collections, or cover the cost of an emergency expense, such as broken equipment in need of repair or replacement. You should always plan for the unexpected and be able to weather the storm.