Managing finances can be a challenge for any small business owner. Often, the reason your small business is successful is because of the skills you bring to making your product or providing your service. If you don’t have a lot of experience with managing business finances, it can feel like a chore and you could be slipping into bad financial habits that could one day harm your business.
The most important step for any business owner is to educate themselves. By understanding basic skills needed to run a small business – like doing simple accounting tasks, applying for a loan or drafting financial statements – business owners can create a stable financial future. In addition to education, staying organized is a major component of sound money management.
There is nothing more terrifying, costly or risky than showing up at your accountant’s office at the end of the year with a shoebox of receipts and nine of your last 12 bank statements, It is impossible to overstate the importance and benefit of properly tracking your financial information throughout the year.
Here are a few things you should do as a small business owner to stay on top of your finances.
If you’re running a small business, it can be easy to try and put everything into day-to-day operations. After all, that extra capital can often go a long way in helping your business grow. Alexander Lowry, a professor and director of the master of science in financial analysis program at Gordon College, said small business owners shouldn’t overlook their own role in the company and should compensate themselves accordingly. You want to ensure that your business and personal finances are in good shape.
Many SMB owners, especially at the outset, neglect to pay themselves, They [believe] it’s more important to get the business up and running and pay everyone else. But, if the business doesn’t work out, you won’t have ever paid yourself. Remember, you’re part of the business and you need to compensate yourself as much as you pay others.
Invest in growth
In addition to paying yourself, it’s important to set aside money and look into growth opportunities. This can allow your business to thrive and move in a healthy financial direction. Owners should always keep an eye on the future.
A small business that wants to continue to grow, innovate and attract the best employees [should] demonstrate that they are willing to invest in the future, Customers will appreciate the increased level of service. Employees will appreciate that you are investing in the company and in their career. And ultimately you will create more value for your business than if you were just spending all your profits on personal matters.
Have good billing strategy
Every business owner has a client that is consistently late on its invoices and payments. Managing small business finances also means managing cash flow to ensure your business is operating at a healthy level on a day-to-day basis. If you’re struggling to collect from certain customers or clients, it may be time to get creative with how you bill them.
Too much cash tied up in unpaid invoices can lead to cash flow problems, a leading cause of business failure, If you have a chronic late-paying customer, which we all do, instead of badgering them with repeated invoicing and phone calls, try a different approach. Change the payment terms to ‘2/10 Net 30.’ This means if the customer pays the invoice within 10 days, they receive a 2 percent discount off the total bill. If not, the terms are full payment due in 30 days.
Spread out tax payments
If you have trouble saving for your quarterly estimated tax payments, make it a monthly payment instead, That way, you can treat tax payments like any other monthly operating expense.
Monitor your books
This is an obvious practice, but a very important one. Do your best to set aside time each day or month to review and monitor your books, even if you’re working with a bookkeeper. It will allow you to become more familiar with the finances of your business, but also provide you with a window into potential financial crime.
Do not neglect bank reconciliations and spending some time each month on reviewing outstanding invoice, Failing to do this, especially if a bookkeeper is involved, opens up the business to wasteful spending or even embezzlement.
Focus on expenditures, but also ROI
Measuring expenditures and return on investment can give you a clear picture of what investments make sense and which may not be worth continuing. Small business owners should be wary of where they spend their money.
Focus on the ROI that comes with each of your expenditures, Not doing this means that you can lose money on irrelevant or bad spending bets. Know where you are spending your hard-earned dollars and how that investment is paying off. If it isn’t paying off, cut back and spend a bit more on the initiatives that do work for you and your business.
Set up good financial habits
Establishing internal financial protocols, even if it’s as simple as blocking out set time to review and update financial information, can go a long way in protecting the financial health of your business. Keeping up with your finances can help you mitigate fraud or risk.
As a small business, we are often strapped for time, money and have vastly inferior technological capabilities, but it shouldn’t prevent any small business owner from implementing some sort of internal control, This is especially important if you have employees. Weak internal controls can lead to employee fraud or theft, and can potentially get you into legal problems if you or an employee are not abiding to certain laws.
There will always be business issues that need to be addressed today, but when it comes to your finances, you need to plan for the future.