Running a successful small business often relies on your expertise in your product or service. However, managing finances, a critical aspect of business operation, might not be your forte. Lack of experience in financial management can pose challenges, but it’s essential for your business’s survival. Here’s how to develop responsible financial practices that steer your business toward success.
Managing Finances in Your Small Business: Tips to Follow
1. Pay Yourself
As a small or midsize business owner, it’s tempting to invest everything back into your operations. Yet, don’t overlook your own compensation. Alexander Lowry, a finance professor, advises ensuring your personal and business finances remain healthy.
2. Invest in Growth
Allocate funds for future growth opportunities. Edgar Collado, COO at Tobias Financial Advisors, stresses the importance of investing in the future to attract top talent and enhance services.
3. Embrace Loans
While loans may seem daunting, they can provide crucial capital for equipment purchases or team expansion. Choose loans with manageable terms and rates.
4. Maintain Good Credit
Good credit facilitates future business transactions and acquisitions. Pay off debts promptly and avoid high-interest loans to bolster your creditworthiness.
5. Develop a Billing Strategy
Manage cash flow by devising effective billing tactics. Offering discounts for prompt payments can incentivize timely settlements.
6. Schedule Tax Payments
Ease the burden of quarterly tax payments by spreading them out monthly. Treat taxes like any other monthly expense to avoid financial strain.
7. Keep Tabs on Your Books
Regularly review your finances, even with a bookkeeper’s assistance. This practice enhances familiarity with your business’s financial health and helps detect potential irregularities.
8. Evaluate Expenditures and ROI
Monitor spending and assess returns on investment to make informed financial decisions. Focus resources on initiatives yielding the highest returns.
9. Establish Financial Habits
Implement internal financial protocols to safeguard against fraud and mitigate risk. Dedicate time to managing finances regularly.
10. Plan for the Future
Look ahead to anticipate financial needs and challenges. Tina Gosnold, founder of Set Free Bookkeeping, emphasizes the importance of long-term planning for staying competitive.
In Summary
Managing small business finances involves paying yourself, planning ahead, prudent debt management, and prioritizing return on investment. Understanding different funding options like debt and equity financing is crucial for financial stability.
Remember, educating yourself on financial basics and maintaining organizational discipline are key to managing your business’s finances effectively. While seeking professional advice is beneficial, taking ownership of day-to-day financial management is essential for long-term success.
