The inability to manage finances can be risky since capital is crucial for the survival of a business. Your small business may offer useful products or services, but poor financial management could negatively impact growth. Staying on top of the most critical aspect of your business will help you set up your brand for success. Healthy financial practices are particularly essential for small business owners since most of them manage with fewer resources and razor-thin margins. You can improve your small business financial management with these powerful strategies.
- Separate personal and business finances
Many budding entrepreneurs make the mistake of using their credit cards for business purposes like paying for company expenses and depositing business revenue into their bank accounts. Although this habit may seem convenient, it can cause severe financial implications. For example, the Internal Revenue Service (IRS) usually permits business owners to deduct related expenses, including travel and supplies, when filing taxes. However, you have to provide verifiable documents to enjoy these benefits. You may not qualify for deductions if the IRS audits your tax returns and fails to find any proof of business-related expenses. As a small business owner, you can avoid missing out on deductions by opening business bank accounts. Look for business accounts that offer unlimited transactions, free checks, and no monthly maintenance fees. It will benefit your financial management.
- Make sure you pay yourself
You may be tempted to pay yourself last or forego a check in an effort to save money and boost business revenue. However, ensuring that you pay yourself first is necessary, even if it’s just a couple of hundred dollars. Paying yourself has several advantages that you probably don’t want to miss. For example, it improves your savings and helps you settle your finances. This step is crucial, whether the business makes huge profits or not. How you choose to pay yourself may depend on your business structure, though. You can talk to your accountant to understand how best to take your pay.
- Build your business credit score
Your small business credit score can affect your chances of qualifying for credit, contracts, and business insurance. Therefore, you have to regularly check your credit reports. It’s worth noting that not all credit card companies and vendors report payments to credit cards via credit bureaus. You can build your small business credit card by signing up for a free DUNS number via DUN and Bradsheet. Use your Data Universal Numbering System (DUNS) number to apply for business credit cards or trade credit accounts and make early payments to prove to credit bureaus that your brand is financially reliable.
- Invest in growth
Setting aside money and exploring growth opportunities can allow your small business to flourish in a healthy financial environment and also position you for the future. Demonstrating your willingness to invest in the future will help customers appreciate the high level of service. Employees, too, will likely want to stick with your business if they know you invest in their careers and create growth opportunities. With a good investment, you will eventually be able to improve the overall value of your small business.
- Work with accounting professionals
Partnering with accounting professionals can help simplify your financial management. Expert accountants can help create a business plan, choose a business entity or structure type, apply for loans, and manage accounts payable. You don’t always have to employ a full-time accountant to manage your money better. Outsourcing to freelancers who can spend a couple of hours every month reviewing your bookkeeping and recommending strategic actions can be helpful. As your small business grows, try to scale and get more help with bookkeeping, inventory, and cash flow management.
- Have a smart billing strategy
Every small business owner has to deal with a few clients who consistently make late payments. Learning to manage small business finances also means controlling cash flow to ensure your company operates at a healthy financial level daily. If you often struggle to collect money from customers, it’s time to get smart with how you bill them. Too much cash locked up in unpaid invoices can create serious cash flow issues and potentially result in business failure. Instead of badgering chronic late-paying customers with incessant invoices and phones, try a different creative approach. For instance, you may want to consider changing the payment terms to 2/10 Net 30. This way, customers will enjoy a 2% discount on the total bill if they use 10 days to pay invoices. Otherwise, the full payment will be due in 30 days.
- Take advantage of business loans
Avoid shying away from small business loans as they can provide substantial capital to invest in new equipment, employees, and cash flow management. Relying on personal funds or seeking financial support from family and friends isn’t a bad thing. However, securing loans is one of the easiest ways to fund your business. Investments and loans provide a great potential to build your company faster with fewer personal risks.
- Cut costs
Cutting costs and growing revenue are straightforward financial management tips that can be hard to implement. Small business owners who struggle to manage their funds may want to search for ways to decrease costs and increase revenue. One simple strategy to control business expenses is to examine them and cut costs. Considering current expense areas and amounts will let you scale back and remove frills. Another idea to decrease costs is to shop around for new vendors. Boost revenue by introducing discounts, new products, and loyalty programs. You can also promote your products through effective digital channels like social media and email.
- Monitor your books
Bookkeeping is another obvious practice for managing your business finances judiciously. Setting time aside to review your books daily or monthly makes sense, even if you work with a bookkeeper. Monitoring your books is a great way to become familiar with your small business finances and gain insights into possible malpractices. You don’t have to overlook bank reconciliations and reviewing outstanding invoices. Not doing this can expose your business to wasteful spending or embezzlement, whether you have a bookkeeper or not.
- Create a budget
Effective budgeting can allow you to simplify how you manage your business’s money. It helps you set expenses and revenue goals. You can effortlessly manage your finances if you know how much you can afford to spend. Therefore, create a good budget that spells out all the expenses you need to run your business. Developing a realistic budget can also help you forecast the amount of revenue you can generate. Finding ways to cut expenses and improve income is advisable if you find out that your revenue is lower than your stipulated budget.
- Stay on top of deadlines
Your business may lack cash on hand if you don’t know when bills like credit card payments, business loans, and accounts payable are due. Apart from that, failing to understand when your bills are due can result in late fees, lower business credit, additional interest, and broken relationships between you and vendors. Staying on top of deadlines is one great strategy to avoid missing payments. Therefore, consider setting payment reminders so that you don’t fall behind the deadlines. You can build a consistent payment schedule by writing due dates on paper, tablets, and computer calendars.
- Monitor accounts receivable
Small businesses that offer credit to customers would agree that they may not receive payment for goods and services until the due date or later. Unfortunately, forgetting about accounts receivable only takes a few weeks or months. If you want to improve your financial management, you can’t afford to neglect funds owed to the company. Therefore, make it easier to pursue payments by recording accounts receivables in your books.
Accounts receivable reports can show you how much customers owe when to expect payment, and which customers have missed the deadlines. While tracking receivables is crucial for smart financial management, ensuring you get paid is even more important. You can chase payments by sending out invoices and late notices to clients. You can also offer early payment discounts to encourage buyers to pay you earlier than the due date.
Managing small businesses can be challenging, but you can keep your books in order if you follow these tips. Create realistic budgets and stick to them, track expenses right from the startup phase, reinvest into the business and know when to outsource certain responsibilities to financial professionals when the need arises. These strategies will let you organize your money and focus on things that actually matter.
