Running a small business often means having a lot of knowledge of your industry, and having some knowledge of accounting, finance, human resources, informational technology and similar.
Finance is one of the crucial parts of business operations. Still, very few entrepreneurs are financial experts by training.
Focusing on the financial side of your company is a must, regardless of your field of expertise. This aspect deserves as much attention as manufacturing, marketing, and distribution are receiving. While there are some major costs and investments to process every now and then, it is also essential to maintain your alertness when it comes to everyday spending. With that in mind, here are some important financial management lessons every small business owner needs to know.
Don’t mix business and personal accounts
A lot of business owners are often tempted to secure their business finances with their personal funds and sometimes even to use business money when they are lacking some in their wallet. Both of these ideas are bad for many reasons. Firstly, there are legal issues, such as accounting, taxes, and personal liability. Secondly, this can turn into a bad habit which can make both your personal and professional finances a train wreck.
To prevent such disasters you should set a personal and a business budget and adhere to them strictly. This includes separate credit cards, loans, and taxes.
Make timely payments
It is easy to lose track of the bills, loans, and credit card fees when you have tons of other things to do and worry about. But everything regarding finances, including utility bills and employees’ paychecks, needs to be managed properly because it will consistently add up to a large sum which can cause you millions of problems.
Paying your bills and loans on time will save you from late fees and giving your employees what they are promised and when they are promised will ensure loyalty and overall good atmosphere in the firm.
The easiest ways to do this is to set up monthly reminders and set aside a budget for these sorts of things for each month.
Don’t forget to pay yourself
Being your own boss means that you are an employee too, which consequently means you deserve compensation too. Many small business owners invest everything they have in day-to-day operations and growth, and they overlook their own role in the company. If you neglect to pay yourself your personal finances will not be in good shape and your business will suffer as a result.
Seek out growth opportunities
In addition to compensating for all the hard work you are doing, you need to keep your eyes open for the chance of growth opportunities. In order to remain vital, every small business needs to continue to innovate, attract new employees and partners, come up with new ideas, and grow. For that, you need to invest. Some of the small business growth strategies you need to consider are market penetration, market expansion, product expansion, diversification strategy, and acquisition strategies.
Have a solid billing strategy
If there is anything that can hurt your business that is poor cash flow. If there is anything that can hurt your cash flow that is poor billing strategy. Clients that are late on their invoices and payments can harm your business operations, which can lead to business failure.
If you have problems with late-paying customers, and badgering them with reminders and repeated invoices doesn’t work, you should try a different approach. You can give them discounts when they pay on time and fines when they are late.
Plan for the future
The world of business is full of surprises, and many of them are unpleasant. However, based on your previous expenses and earnings for a few months back, you can learn just how much money you need to set aside each month. Besides the regular items on your monthly budget, there is also a need for dedicating money for the unforeseen expenses, which can include everything from lawsuits to natural disasters.
Some business find that getting a loan can ease cash flow issues. One popular option loan option for smaller businesses is from the US Small Business Administration (SBA). The SBA Express Loan can be a good option if you need access to cash quickly as the review process usually takes under 36 hours. However, while the review process is extremely fast, keep in mind that it takes over 30 days still to actually receive the cash. So before applying for an SBA loan make sure to plan ahead.
Have a strong budget
Speaking of… Keeping your budget accurate is one of the best things you can do for your firm. All expenses and incomes need to be recorded and tracked as they arrive. To succeed in that, you will need to hire an accountant, outsource this part of the job to an accounting company, or, for the time being, download a budgeting smartphone app.
Establish healthy financial habits
In the end, it all comes down to setting up good financial habits. This includes internal financial protocols (e.g., setting time to review and update financial information), controlling where and when your money goes and becoming more frugal.
If you fail to do these things you will leave your business vulnerable to fraud, theft, and legal problems. As for the frugality, there is no need to turn yourself and your employees into extreme “coupon collectors”. However, you can be alert for rebate offers, negotiate with vendors for better deals, and refrain from unnecessary costs.
The more you comprehend the financial side of your business, the better equipped you will be to make smart money management decisions. The lessons above will help you get started, but you should always be hands-on it and proactive when it comes to managing your finances, regardless of the scale of the challenge ahead.