While owning a small business comes with a plethora of challenges and rewards, perhaps the most arduous is managing finances. Overseeing the finances of your business is similar to having another full-time job. It doesn't fall under the umbrella of driving the business forward but has the power to make or break your business entirely.
Managing your small business finances requires a series of small, sustainable habits. Here are some practical tips for managing your small business finances for long-term success.
Separate Business and Personal Finances
The first step in small business finance management is to separate your personal and business finances. Set up separate bank accounts and practice smart money handling when navigating transactions. This layer of separation will help you stay on track while adding a layer of protection in the event of an audit.
Keep a separate business phone. It not only saves money but also makes you look professional. You can also maintain a perfect work-life balance if you keep personal and professional calls separate. But instead of using a traditional landline, opt for VoIP phone system. This new-age technology is easy on your pocket and has wondrous features. At an amazingly low price, VoIP comes with call recording, call queuing, call forwarding, setting business/holiday hours, video calls and much more.
Being a small business, bOnline understands the needs of a small business. With HD quality, bOnline offers VoIP plans exclusively made to suit the requirements of a small business.
Keeping separate accounts also simplifies drawing a salary as a business owner. In addition to separating business and personal finances, consider creating individual accounts for an emergency fund, expenses, taxes, etc.
Monitor Your Credit Score
Many business owners don't know their business credit score until they need it. At that point, you typically need to be able to raise your credit score fast, which isn't always ideal.
A better approach is to monitor your credit score and make improvements over time. Having a great credit score not only makes your business more eligible for a loan but also impacts your terms and rates. While you may not be in the market for a business loan currently, it's important to have that option for when you want to scale and grow.
Getting a business loan is a great way to progress toward your expansion goals. However, it's essential to consider other options first when managing your business finances.
Bootstrapping refers to the act of creating a self-sustained business venture, using ingenuity and creativity to finance your efforts. This could include bartering or trading services with another business owner or building a savings plan. The bootstrapper's mindset incorporates keeping costs low by negotiating and monitoring spending. In essence, it's the idea of being less dependent on financing and getting creative to become self-sufficient.
Take a Profit First Approach
Many entrepreneurs struggle to pay themselves a salary while running a business, adding to an already stressful situation. Profit First is a financial management system proposed by Mike Michalowicz in his book of the same name.
The Profit First approach flips the traditional equation of sales - expenses = profits to sales - profits = expenses. Instead of making your profit fit your spending, you make your spending fit your profits. This mental shift goes along with rethinking your financial buckets to set up separate accounts for owner pay, profits, taxes, expenses, and general income.
Streamline Your Invoicing Process
One of the biggest mistakes business owners make when handling their finances is neglecting the invoicing process. Failing to send out invoices in a timely manner limits cash flow, putting the business in a potentially precarious situation.
Create a streamlined invoicing process that ensures the timely delivery of invoices to customers. Develop a follow-up plan to chase down late payments and consider incorporating a benefit for those who pay early or with cash. Don't hesitate to invest in apps that incorporate automation and centralization into the invoicing process.
Babysit Your Expense Accounts
Understanding how much money is leaving your business is just the tip of the iceberg. To better handle your business finances, you'll need to drill down into where the money is going and why.
Be a stickler when it comes to babysitting your expense accounts. Take the time to understand what small expenses are adding up, and how you can cut these expenses in a sustainable way.
Practice Tax Preparation All Year
The secret to surviving tax season is to practice tax preparation all year long. Stay ahead of your accounting and set aside time each month to record your expenses, update your P&L, and ensure everything is ready well ahead of your deadlines.
Outsource As Needed
Finally, outsource your financial management tasks as needed. Consider working with a financial advisor to make key business decisions. Hire a contract bookkeeper to assist with tax prep. You can even work with a virtual assistant to handle your invoicing and accounts receivable.
By prioritizing your financial management, you'll set your small business up for success now and in the future.