As a small business owner, you should do the following to keep finances under control.
Pay Yourself
If you’re running a small or medium-sized business (SMB), it can be tempting to put all your money into day-to-day operations. After all, extra capital can often be very helpful in growing your business. Alexander Lavery, professor and director of Gordon College’s Master of Science in Financial Analysis program, says small business owners shouldn’t neglect their role in the company and get their fair share of compensation. You should make sure that your business and personal finances are in good shape.
“Many SMB owners, especially in the beginning, neglect to pay themselves,” he said. “They [think] it’s more important to run the business and pay others. But, if the business doesn’t succeed, you’ve never paid yourself. Remember, you’re part of the business, and you have Pay yourself as you pay others.”
Invest in Growth
It’s important to set aside some money and look for growth opportunities, which can allow your business to flourish and move in a healthy financial direction. Edgar Collado, chief operating officer of Tobias Financial Advisors, said business owners should always keep an eye on the future.
“A small business that wants to grow, innovate, and attract the best employees [must] show they’re willing to invest in the future,” he said. “Customers will appreciate better service levels. Employees will appreciate that you’re investing in the company and their careers. And ultimately, you’ll create more value for your business than if You are spending all your profits on personal matters.”
No need to be afraid of loans
Debt can make business owners worry about the financial implications of failure. However, without capital from loans, you may find it difficult to purchase equipment or grow your team. You can also use the loan amount to improve your cash flow, making it less difficult to pay employees and suppliers on time. Additionally, the best business loans come with terms and rates that many small business owners can easily adjust to.
Have good business credit
As your company grows, you may want to purchase more commercial real estate, obtain additional insurance policies, and take on more debt to meet these goals. If you have bad business credit, it can be difficult to get approved for these cases.
To maintain good credit, pay off all your debt as soon as possible. For example, don’t carry long balances on your business credit cards. Likewise, don’t take out loans with interest rates you can’t afford. Only get funding that you can pay back quickly and easily.
Adopt a good billing strategy
Every business owner has that client who is always late with their invoices and payments. Managing small business finances also means managing the cash flow to operate the business at a healthy level on a day-to-day basis. If you’re having trouble collecting from certain customers or clients, it may be time to creatively change the way you bill them.
“Too much cash that’s tied up in unpaid invoices can lead to cash flow problems, which is a major cause of business failure,” said James Stefrick, managing editor of the Invoice Factoring Guide. “If you have a customer who always pays late, as we all do, take a different approach instead of frequent invoicing and calls. Set the payment terms to ‘2/10 net 30.’ Change to. This means that if the customer pays the invoice within 10 days, he will get a 2% discount on the total bill. If not, full payment will be due in 30 days.”
Divide tax payments
If you’re having trouble saving money for quarterly estimated tax payments, make it a monthly payment, said Michelle Etzel, owner of Bayside Accounting Services. That way, you can treat tax payments like any other monthly operating expense. You can also use the best online tax software platforms to make your tax payments easier.
Keep track of your accounts
It’s a simple thing, but it’s very important. Whether you’re working with a bookkeeper, do your best to take the time to review and keep track of your accounts daily or monthly. This will give you an opportunity to become more aware of your business’s financial condition and detect potential financial crimes.
“Don’t overlook bank reconciliations and spend some time each month reviewing unpaid invoices,” said Terence Channon, principal of NewLead LLC. “If you don’t, especially if a bookkeeper is involved, it opens the business up to waste or even fraud.”
Focus on costs and returns
Measuring costs and return on investment (ROI) can give a clear picture of which investments make sense and which ones don’t. Deborah Sweeney, CEO of MyCorporation, said small business owners should be careful where they spend their money.
“Focus on the ROI that comes with every expense,” he said. “Failure to do so means you could be wasting money on irrelevant or bad investments. Know where you’re spending your hard-earned money and how that investment will benefit you. If It’s not profitable, so cut back and spend more on initiatives that work for you and your business.”
Establish good financial habits
Establishing internal financial protocols, even if it’s as simple as setting aside a specific time to review and update financial information, can go a long way in safeguarding the financial health of your business. Keeping track of your finances can help reduce fraud or risk.
“As a small business, we often lack time, money and technical skills, but that shouldn’t stop any small business owner from implementing internal controls,” Koldo said. “This is especially important when you have employees. Weak internal controls can lead to employee fraud or theft and create legal problems if you or an employee are not following certain rules. ”
Plan ahead
There will always be business issues that need to be addressed today, but when it comes to your finances, you need to plan for the future. “If you’re not thinking about the next five to ten years, you’re behind the competition,” said Tina Gosnold, founder of QuickBooks specialist firm Set Free Bookkeeping.
Types of Business Financing
It’s important to remember that business finances aren’t just about your income; It’s also about how you spend your money and where you get it. As far as obtaining financial resources is concerned, you should understand the following two main types.
Loan financing
Debt financing is a loan that your company pays back with interest. Loan financing gives you instant access to money that you might not otherwise be able to access for weeks or months. Bank loans, government loans, merchant cash advances, business lines of credit and business credit cards are all types of debt financing that you must pay back, even if your company fails.
Capital Financing
Equity financing, unlike debt financing, does not always require repayment if your business fails. However, you will need to involve your investors in decision-making. Venture capitalists, angel investors, and equity crowdfunding are types of capital financing. To learn more, read our guide that explains the difference between debt and equity financing.
The importance of managing your business finances
The most important step for any business owner is to educate yourself. By understanding the basic skills needed to run a small business—such as doing simple accounting tasks, applying for a loan, or preparing financial statements—business owners can build a stable financial future and avoid failure.
Additionally, organization is a major component of sound financial management. Don’t be afraid to seek advice from a professional, but make sure you’re well versed in managing the day-to-day finances of your business and planning for the future.