Denice R. Preston
Your business is less likely to fail if you manage your finances properly.
Plan, pay yourself, maintain good credit, and monitor your books to manage your business’s finances.
Equity funding is not subject to interest but may be less flexible and give you less control of your business affairs.
This is a guide for business owners seeking tips on managing their company’s finances.
Your small business will often be successful due to your knowledge of making products or providing services. You may not be a pro at other aspects of business management, like managing finances. It cannot be easy to manage business finances if you have little experience. However, this is crucial for the survival of your company. How to develop responsible financial habits to put your business in the right direction.
Small business financial management tips
As a small-business owner, here are some things you can do to keep track of your finances.
You can pay yourself.
It can be tempting to focus all your efforts on the day-to-day running of a small business or medium-sized enterprise (SMB). Those extra funds can go a long way in helping you grow your business. Alexander Lowry is a professor at Gordon College and the director of their Master of Science in Financial Analysis Program. He says small business owners should pay attention to their role in the company and compensate themselves accordingly. Ensuring that your personal and business finances were in order would be best.
He said many SMB owners must pay their salaries, especially initially. “They [believe] that running their business is more critical than paying others. If the company fails, you will never have delivered yourself. You’re part and parcel of the business. So, make sure you compensate yourself just as much as others.
Invest in growth.
Set aside money to look at growth opportunities. This can help your business grow and take a positive financial turn. Edgar Collado is the chief operating officer of Tobias Financial Advisors. He said that business owners must always look to the future.
He said that a small business that wants to continue growing, innovate, and attract the best staff [should] show that they’re willing to invest in their future. Customers will be impressed by the improved level of service. The employees will be grateful that you invest in the business and their careers. You will ultimately create more value for the company than if your profits were spent on personal matters.
Editor notes: Do you need a small-business loan to grow your business? Please fill out the questionnaire below for free information from our vendor partners.
Feel free to borrow money.
Business owners may worry about the financial consequences of a failure when they take out loans. You may find it easier to grow your business or purchase new equipment with the capital you receive from loans. The loan proceeds can increase your Cash Flow, allowing you to pay employees and suppliers more quickly. The best business loans also come with rates and terms that small business owners can accept easily.
Be sure to have a solid billing strategy.
Each business has clients who must arrive on time with their payments and invoices. Cash flow management is an integral part of managing small business finances. This will ensure that your business operates at a healthy rate daily. You should be creative in charging specific clients or customers if you need help collecting from them.
James Stefurak is the managing editor of Invoice Factoring Guide. He said that too much cash in unpaid bills could cause cash flow issues, a significant reason for business failure. If you have a chronically late paying customer, as we all do, try a new approach instead of pestering them with repeated phone calls and invoicing. If the customer does not reimburse the invoice in 10 days, the terms are changed to “2/10 Net 30”. This gives them a discount of 2% on the total bill if they pay the invoice. If not, full payment is due within 30 days.
Tax payments can be spread out.
Michele Etzel of Bayside Accounting Services said that if you need help saving up for your quarterly estimated taxes, make them monthly. You can then treat your tax payments as any other monthly expense. You can streamline your tax payments using the best online tax software platforms.
Keep track of your books.
It’s an obvious but critical practice. Even if you work with an accountant and schedule time every day or each month to review and monitor your books, you will be able to understand the financial side of your business better, and you’ll have a clearer view of any potential financial crimes.
Terence Channon is the principal of NewLead LLC. He said, “Don’t neglect bank reconciliations or spend some time every month reviewing outstanding invoices.” If you fail to do so, especially if your bookkeeper is involved, it can expose a business to unnecessary spending or embezzlement.
Both expenditures and ROI should be considered.
You can get a better picture by measuring ROI and comparing it to your expenditures. Deborah Sweeney of MyCorporation said that small business owners need to know how they spend money.
She said, “Pay attention to the return on investment for each expenditure.” You could lose money if you don’t do this. Spending your hard-earned money wisely is essential. You should know how it pays off. “If it’s not paying off, reduce your spending and invest more in initiatives that work for you and the business.”
Establish good financial habits.
Even if you dedicate a certain amount of time each week to updating and reviewing financial data, establishing internal financial protocols can help protect the financial health of your business. Keep track of your finances to reduce fraud and risk.
Collado explained that small businesses are often limited by time and money and have inferior technology. However, they should still implement an internal control. This is particularly important if you employ people. Weak internal control can lead to employee theft or fraud, and you could be in legal trouble if you violate certain laws or your employee does not.
