Lack of knowledge about finance and accounting is a significant problem in the small business world, with 60% of small business owners feeling like they don’t know enough.
Part of the issue is that business finance may not sound very exciting, but exciting or not, it’s a critical part of your business. Here are 10 important finance tips to get you started.
1: Prepare a Budget
The first step in successful small business financial planning is to have a realistic budget. This includes planning your expenses as well as estimating your income.
In the early days of your business, you should budget significantly more for expenses than you estimate needing, since starting up often takes more than you might expect. You also want to be conservative in thinking about how much money you’ll have coming in.
Even when you’re more established, you’ll do better if you budget a little higher on expenses and a little lower on revenue. That puts you in a good position for times where things don’t go as planned.
2: Track Expenses
To make sure you’re staying within the limits of your budget, you need to track your expenses. This is an essential business practice, even when you’re just starting out.
When you know where your money is going, you can decide if you need to tighten spending in some areas. You may also find places where it’s worth spending a little more.
From a legal perspective, you need to have an accurate record of your finances so you can file your taxes correctly. It’s much better to get into this habit early and track the expenses on a regular basis, so you have the information on-hand when you need to report it.
3: Keep Up with Invoices
The other side of small business finance is your revenue, and in order to keep cash flowing in, you need to stay on top of invoices.
Invoices serve a couple of purposes. When they have the right level of detail, they track exactly what you’re delivering. This keeps you and your clients in alignment about what to expect.
You also won’t get paid if you don’t send out invoices. The longer you wait to submit them, the more out of balance your budget will be since you won’t receive the income when it’s expected.
In some situations, even if you invoice on time, your clients don’t pay right away, and you’ll need to follow-up. If this becomes a habit for some clients, you could consider offering an incentive for on-time payment, or penalties when payments are late.
4: Be Careful with Debt
One of the challenges with finances for small businesses is managing debt. While it can be tempting to take on debt to build up your business, this can backfire.
Consider realistically how quickly you’ll be able to pay the loan back, and how much of your profit it will consume. If you’ll end up carrying this debt for years, with it taking most of your profit, look at other options.
5: Get Expert Financial Help
As a business owner, you should know something about finances, but you can’t know everything. That’s why you may want to consider working with a small business financial advisor and other experts as needed.
This may seem counter-intuitive when you’re trying to keep expenses down, but hiring specialists is often a good investment. You’ll appreciate having access to their expertise when you need it.
For example, a financial advisor will help you stay out of legal and financial trouble by asking the right questions and ensuring your accounts are set up correctly. They can also help you project your income and expenses and give you tips on where you might be able to make cuts without risk.
6: Consider Local Banks
As a small business owner, you’ll need to work with a financial institution to manage your accounts. Your first thought might be a large, national bank, but it’s worth considering local banking.
A local bank will likely feel much more personal. The people there will get to know you and your situation, and they can make recommendations accordingly.
They’re also often more flexible than larger banks, but they have the same technology and protections. You might get better rates, and working with someone local helps your community.
7: Pay Yourself First
Many business owners struggle with paying themselves first when they have other expenses, but doing this has several advantages.
Even if you’re not paying yourself much, seeing any kind of income is a good incentive to keep working. It’s also a good way to build up some savings, and it shows your level of commitment to banks and investors.
You don’t have to pay yourself much, but make it consistent. You can then adjust the amount over time.
8: Retirement Planning
You may love working at your small business, but you’ll still want to retire eventually. To make this possible, you need to plan ahead.
Spend at least a few months tracking your personal finances as well as your business ones. This will give you a guideline of how much money you’d need to live on post-retirement. You can then update your budget to include some funds to invest for retirement.
9: Health Insurance
Providing health insurance is another important part of having a small business. Depending on the size of your company, you may be legally required to provide health insurance, but even if you’re not, having the option will benefit you in the long run.
Employees who know their medical needs are covered are happier in their jobs, and they also perform better.
If you’re the only employee, you still want to make sure that you have coverage for routine as well as urgent care. Without insurance, you could end up spending far more out-of-pocket on a serious medical condition than you would with insurance.
Having the coverage will also give you peace of mind to focus on other parts of your business.
10: Make Use of Technology
If you’re wondering how to manage a small business with all these moving parts, technology can help.
You can now find software to handle your budget, track expenses, prepare invoices, and more.
Video conferences helps minimize travel expenses, and you have electronic options for making and receiving payments. Tools like HootSuite and Buffer can also help you manage your social media accounts.
Even better, many of these options are low-cost, especially for smaller companies, making them a good fit for your budget.
Business Finance is Key to Success
You might be eager to jump into business finance, but it’s important to do. If you use the right tools, get expert help where needed, and make financial review a regular habit, your business will be much more likely to succeed.
Need more small business tips? Visit our blog for information about business credit cards, payroll services, loans, and more.