HOW TO MANAGE YOUR SMALL BUSINESS’S FINANCES

There are a lot of fantastic business ideas that end up failing during the early years. Why? A lack of financial management.

Managing your business finances is the foundation of your sustainability and longevity. Creating healthy financial habits and processes starts during the early days of an organization. If you’re striving to set your business up for success, use these helpful tips for how to manage your small business finances.

 

Create a Profit First System

Many entrepreneurs and small business owners struggle with the balance between personal and business finances. In some situations, it’s a matter of separating the two. In others, it’s a matter of drawing from the business to pay oneself a salary. Failure to create that separation can lead to audits and heavy fines or entrepreneur burnout.

Using a profit first system flips the traditional business structure of “revenue minus expense equals profit” on its head. Instead, you take out your profit and make your expenses fit your revenue. By shifting this mindset, you create a healthy attitude regarding business finance that encourages growth.

 

Monitor Your Credit Score

A lot of small businesses don’t collect any information about their credit score until it’s too late. Finding out that your credit score is terrible when you go to apply for credit can devastating for a small business.

Schedule time quarterly to take a look at your business credit score. If necessary, work with a credit repair business to dispute negative items and start the healing process.

Don’t worry about how looking at your credit score will impact the number. There’s a difference between hard and soft pulls when it comes to credit scores. Looking at the number once every few months is vastly different than having a loan agency pull it to assess your borrowing eligibility.

 

Reinvest in Growth

They say you have to spend money to make money. When it comes to managing your business finances, that’s the truth. While it’s important to track and curb expenses, it’s equally important to reinvest in growth.

For example, dedicating 10% of your income to marketing efforts will create a scaleable strategy for your business. As you attract new customers with that investment, the 10% will grow with the revenue.

Don’t just consider how much something costs when looking at business expenses— always work with the ROI in mind.

Be Tax-Ready All Year

Preparing for tax season should be a monthly task. Updating your expenses and filing your paperwork each month will ensure that you’re setting aside enough money to cover the tax bill. Furthermore, it will prevent last-minute panicking that could lead to missing out on claims that could maximize your return.

Organization and time management practices will help you manage your small business finances by being tax-ready all year.

 

Invest in Insurance

As a business, having insurance is one of the best protective measures you can take to protect your business finances. Find out which types of insurance you should have based on your industry. You want to be covered based on dealing with your clients, managing employees, having a physical location, covering inventory in the case of a natural disaster, etc.

Insurance is one of those expenses that you scoff at until you need it. Don’t let the up-front cost prevent you from making a smart financial decision for your company.

 

Negotiate Like a Pro

Learn how to negotiate with vendors, suppliers, contractors, and customers. While it’s essential that you are good for your word and deliver on what’s promised, there’s always room to negotiate.

Work with your contacts to find an agreement that benefits both of you. Negotiating is a great way to cut back your business expenses with minimal effort. Remember to maintain professionalism and be realistic when negotiating as to maintain positive vendor and customer relationships.

 

Build Your Savings

As a small business, you should always be working to set aside some money. This means planning ahead for recurring expenses so that you aren’t dipping into credit when those bills come up. For example, your annual property taxes or business tool subscriptions. Setting aside $15 a month to pay for your annual social media scheduling tool is a lot less impactful than taking $180 from a single month of income.

It’s also worthwhile to build an emergency savings fund in the event that something goes wrong in your business. Ideally, you’ll have enough in this account to cover your business expenses for a month. Small business owners should practice this both with their business and personal finances.

 

Final Thoughts

If you’re ever at a loss for how to manage your small business finances, don’t hesitate to reach out to a financial advisor. Find someone who specializes in working with entrepreneurs. Remember, the decisions you make today affect your success tomorrow.

 

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