Running a small business isn’t just about creating and selling a great product or service. Managing finances is an essential element of any successful business. Getting finances wrong can easily doom a small business to failure, so following the right steps in this area is critical. Here are nine practical and important tips for managing the finances of a small business.
Have Enough Capital
Many new small businesses fail because they don’t have enough money to keep running. It can be a while before a small business turns a profit. Getting past the start-up phase requires having capital on hand. A good rule is to have enough money saved to cover at least three months of living and business expenses.
Apply for a Loan Early
Many small business owners don’t apply for a loan until they are in dire financial straits. By this time, it’s probably too late. A business that is failing is unlikely to receive a loan. If there appears to be trouble on the horizon, getting another line of credit before the situation gets out of hand is smart. While some business owners think avoiding all debt is smart, loans can be a key part in succeeding in business.
Keep Business and Personal Accounts Separate
Not all money brought into a business is personal income, so having a separate business bank account makes sense. A single bank account is a recipe for disaster. Simply tracking expenses and taking care of taxes can be a huge problem if a business owner does not keep their personal and business bank account separate.
Minimizing costs should generally be the goal when running a small business. While some expenses are certainly worthwhile, reviewing costs regularly is a smart, simple way to avoid waste. Looking over costs allows a business owner to identify and cut out unnecessary spending. A frugal, economical attitude toward spending is essential to business success, especially for small business owners.
Take Care of Invoices
Invoices are how a business actually gets the money owed to it. Invoices should be sent out as quickly as possible after the customer receives the goods or is provided the service they paid for. Having a protocol for following up on invoices is crucial. Clients that don’t pay promptly (or not at all) are a big problem for any small business.
Have a Filing System
Every small business owner needs a method for tracking their important financial data. A small business can get into trouble if crucial files are not available. Among the files that should be kept are contracts, employee records, tax files, licenses, bank statements, and bookkeeping records. Today, a digital filing system is an easy way to stay organized. Hiring an accountant is wise in certain situations.
Handling taxes is much more complicated for a person running a business than for a regular employee. Business taxes are usually complex, so setting aside time to take care of them is smart. Hiring a tax preparer is almost always the best approach. Mistakes when filing taxes can be time-consuming to fix and may come with stiff penalties.
Expanding a small business generally means spending more. While growing a business is a good thing, the process is also fraught with risk. Pumping in too much money, too quickly can put a small business in a vulnerable position. Moving slowly is the safer, more sensible approach.
Make Finances a Priority
A basic but essential element of getting small business finances right is simply making them a high priority. A small business owner has a lot to take care of. Other areas of business may be much more rewarding and interesting. Financial matters, for most people, are boring and monotonous to deal with. However, it’s the boring stuff in business that can be the most important.
Finances are a make-or-break element of running a small business. Any small business owner who does not recognize this basic reality is setting themselves up for failure.