10 Tips for Handling Small Business Finances
Your small business’s success is frequently attributed to your skill in creating your product or rendering your service. Unfortunately, you could lack expertise in certain crucial areas of managing a firm, like finances. It can be difficult if you don’t have much expertise managing business money, but it’s also essential to your company’s existence. Here’s how to develop sound financial practices that will put your company on the path to success.
How to manage the finances of a small business
The following are some actions you should take as a small business owner to manage your cash.
1. Pay yourself
It can be tempting to invest all of your resources in running a small or midsize business’s (SMB) daily operations. After all, having a little additional money may frequently make a big difference in the expansion of your company. Gordon College professor and head of the Master of Science in Financial Analysis Program Alexander Lowry advised small business owners to recognize their own contribution to the business and pay themselves appropriately. You want to make sure that both your personal and corporate finances are in order.
Many SMB owners overlook to pay themselves, he noted, especially in the beginning. They firmly think that paying everyone else comes before starting the company. But if the venture fails, you won’t have ever received payment for yourself. Keep in mind that you are a part of the company and should be paid equally to other employees.
2. Invest in expansion
It’s critical to set aside funds and investigate expansion options so that your company can prosper and go in a sound financial direction. Tobias Financial Advisors’ chief operating officer, Edgar Collado, advised business owners to constantly look ahead.
He stated, “A small firm that wants to keep expanding, innovating, and luring the greatest talent [should] show that they are willing to invest in the future.” “The higher quality of service would be appreciated by the customers. The fact that you are investing in the business and their careers will be valued by the staff. In the end, you will add more value to your company than if you only used your revenues for personal expenses.
3. Loans are nothing to be feared
Owners of businesses may become concerned about the financial effects of failure as a result of loans. But without the influx of cash that loans provide, expanding your workforce or buying equipment could prove to be quite difficult. Additionally, you can use loan profits to improve your cash flow, which will make it easier for you to make on-time payments to suppliers and staff. Additionally, many small business owners may easily adjust the conditions and rates of the best business loans.
4. Maintain your business’s credit
You might wish to buy more commercial real estate as your business expands, as well as extra insurance coverage and loans to support these endeavors. Obtaining clearance for these acquisitions and transactions may be more challenging with bad business credit.
Pay off all of your debt funding as soon as you can to maintain good credit. Don’t, for instance, allow your business credit cards to carry a debt for longer than a few weeks. In the same way, avoid taking out loans with interest rates you cannot afford. Only look for funding that you can easily and swiftly pay back.
5. Develop a sound billing plan
Every business owner has a customer who is perpetually late with payments and invoices. In order to keep your business running smoothly on a daily basis, managing small business finances also entails controlling cash flow. It could be time to get creative with how you bill particular consumers or clients if you’re having trouble getting payment from them.
James Stefurak, managing editor of Invoice Factoring Guide, noted that having too much cash locked up in unpaid bills can generate cash flow issues, which are a major factor in business failure. “If you have a persistently slow-paying customer, as we all do, consider a different tactic rather than badgering them with frequent invoices and phone calls. Change the payment terms to “2/10 Net 30,” which entitles the client to a 2% discount on the overall amount if they settle the invoice within 10 days. If not, full payment is required within 30 days.
6. Pay your taxes over time
Make your quarterly estimated tax payments monthly if you’re having difficulties saving for them, counseled Michele Etzel, owner of Bayside Accounting Services. Tax payments can then be managed similarly to any other monthly operating expense. To simplify your tax payments, you can use the best online tax software solutions.
7. Observe your books
Although it seems obvious, this practice is crucial. Even if you’re working with a bookkeeper, try your best to schedule time each day or month to check and monitor your books. This will provide you a better understanding of your company’s finances and a window into potential financial criminality.
Terence Channon, principal for NewLead LLC, advised clients to “do not overlook bank reconciliations and spending some time each month examining overdue invoices.” Failure to do so exposes the company to unnecessary spending or even embezzlement, especially if a bookkeeper is involved.
8. Pay close attention to both costs and ROI
You can clearly see which investments make sense and which might not be worth pursuing by tracking expenses and return on investment (ROI). MyCorporation CEO Deborah Sweeney advised small business owners to be careful with their financial decisions.
Focus on the return on investment (ROI) associated with each of your expenses, she advised. “If you don’t do this, you risk losing money on pointless or wasteful bets. Understand where and how your hard-earned money is being invested, as well as how it is paying off. Spend less on it and a little more on the efforts that do work for you and your company if it isn’t paying off.
9. Create sound financial practices
Establishing internal financial protocols can help to safeguard your company’s financial wellbeing, even if they’re as straightforward as designating a regular period for analyzing and updating financial data. Keeping track of your money can assist you reduce danger or fraud.
Small business owners shouldn’t be discouraged from implementing internal controls, Collado added, even if they frequently have limited resources (time, money, and technological capabilities. If you have staff, this is extremely crucial. Weak internal controls can result in employee fraud or theft and may put you or an employee in legal trouble if they break certain laws.
10. Think ahead
Although there will always be current company concerns that need to be resolved, you should constantly make financial plans for the future. Set Free Bookkeeping founder Tina Gosnold stated that if you aren’t planning five to ten years out, you will fall behind the competition.
Types of business funding
It’s critical to keep in mind that managing your business finances involves more than just your income; it also involves how and from where you spend your money. You need to comprehend the two major funding categories listed below when it comes to the latter.
A loan that your business must pay back with interest is called debt funding. You can immediately obtain funds through debt financing that you might not have access to for several weeks or even months. Debt finance includes bank loans, government loans, merchant cash advances, business credit lines, and business credit cards, all of which must be repaid even if your business fails.
Unlike loan financing, equity capital is not usually repaid if your business fails. You will probably need to give your backers a place at the decision-making table, though. Equity funding comes in the forms of venture capitalists, angel investors, and equity crowdsourcing.
The significance of controlling your company’s finances
For any business owner, education is the most crucial stage. Business owners can build a secure financial future and prevent failure by being familiar with the fundamental abilities required to operate a small business, such as doing easy accounting activities, asking for a loan, or producing financial statements. Sound money management also includes a lot of organization. Don’t be afraid to seek professional advice, but make sure you have a strategy for the future as well as a handle on the day-to-day administration of your company’s finances.
Source: Business New Daily