Running a small business is a combination of complex activities and responsibilities you may have to oversee. Though you might be adept in running the core operations of your business, such as managing inventory, overseeing whether employees are doing their job and fulfilling the needs of their and your customers, etc. The list goes on. But ignoring the core aspects of your business may shorten the lifespan of its operations. And that core operation is none other than the financials of your business. One of the reasons some small businesses only last for a few years is because their owners ignore the financial health of their business.
We have put together 7 pieces of financial advice for your small startup so it lasts and prospers.
1. Specify Budgeting for Your Business
The first crucial step in the financial planning of your business is to clearly specify the budget for the costs of your start-up. You might need to identify both fixed as well as variable costs. Fixed costs, as their name suggests, will stay constant throughout the financial year, such as salaries for employees, insurance, and the building your business operates within.
Variable costs tend to fluctuate as shipping varies from place to place. After identifying the areas of financial spending for your business, next comes the allocation of the budget for the said fixed and variable costs. A well-allocated budget will ensure all the necessary aspects of your business are receiving proper and ample funding to flourish.
2. Maintain a Healthy Business Credit Score
Your business will eventually grow from small to a large one as new sales are made. You might want to purchase more real estate or more inventory for increased customer interaction. Such expenditures require seeking more capital through debit. Though debit would be much more difficult for you to obtain if your business credit score is lower.
You can maintain a good credit score by paying the debt on time. Do not run your business entirely on credit if it isn’t receiving payments from customers on time. Also, make sure to acquire a debit with a lower interest rate that is affordable for your business to repay on time.
3. Keep Expenses in Check
When your business is in its infancy, you might be tempted to spend more to either fill up the inventory or to make its name known among the customers through advertising. No matter what your intention is, don’t let your hand loose on the expenses, as controlling the spending will enable you to better handle cash flow. You will also be less susceptible to financial instability if you set up your finances with expenses that do not skyrocket unexpectedly. You may also keep your expenses in check by tracing out which aspects are not yielding significant results in your business despite ample financial input from your side.
4. Adopt a Good Billing Strategy
Most customers purchasing items from your business will be punctual in paying their bills. But you will come across a few customers who may not pay your bills on time. If most customers do not pay their bills on time, then you might come across serious financial problems, especially when paying off debt or clearing taxes.
Your customer or client will not like a bill that goes beyond his minimum threshold for spending. Though you can incentivize such a customer to pay by giving him a deal that he can’t resist. You could give him a 2% discount on the total amount if he pays on a certain date, or else he will have to pay the full amount.
5. Don’t Ignore Yourself
You, as a small business owner, might be inclined to spend the amount on the growth of your business that you would otherwise have spent on yourself. In our books, that is not a smart move. You should not ignore yourself when you are out and about running your business. If you do not invest your capital in yourself, how would you spend it later on your startup?
Saving something for yourself is also a clever idea if your business does not return something tangible. You will have enough capital left to either heal up the malfunctioning aspects of your business or start a new business altogether.
6. Regularly Check the Financial Records of Your Business
You should not set aside the checking of financial books related to your business, even if you are working with a CPA. Though a CPA for small businesses will be helpful in managing the financial aspects of your business, it is your first and foremost responsibility as a small business owner to take a look at the financial record once or twice a month.
Checking the financials of your business by yourself should give you a clear picture of how your business is doing on a monetary front. You will also be able to measure the ROI to see which of your investments are working to grow your business.
7. Plan for the Next Move in Advance
Whether you’re planning a new product or service to launch under your business, considering an expansion to a new location, or developing your annual marketing strategy, planning for the next move will allow you to work out any stumbling blocks, get the necessary buy-in from partners or investors, and position your business for maximum impact. Do not leave these bigger decisions until the last minute. Carve out dedicated time on your calendar every month for planning sessions. Get clear on your goals and vision, then work to outline the specific steps and timeline required to get there. You will feel less stressed when it’s time for action and more confident that your business is headed in the right direction for long-term prosperity.
Final Words
Running a successful small business requires careful attention to many aspects, but none more important than the financial health and stability of the company. As we have outlined above, measures such as creating a detailed budget, maintaining strong business credit, controlling expenses, implementing a sound billing strategy, saving for yourself, and regularly reviewing financial records are important for small business owners like you.
Following these key pieces of financial advice will help you set up the business for sustainability and prosperity over the long term. Though day-to-day operations and inventory are critical, ignoring the bottom line of profitability and smart money management will likely lead a promising startup to falter. You can position your business venture for longevity and continued growth for years to come if you keep a close watch on cash flow and put financial safeguards in place.
Disclaimer: This article does not constitute tax advice. Please consult Ahmed Baqir, CPA at Epsilon Accounting Solutions PLLC, before making any tax-related decisions or taking any actions based on the information provided in this article. Ahmed Baqir, CPA, has the expertise and knowledge to provide personalized advice tailored to your specific financial situation and goals.
Sources and Suggested Readings
https://www.financestrategists.com/financial-advisor/financial-planning/financial-planning-for-startups/
https://www.thomasnet.com/insights/5-financial-tips-for-startups-and-small-businesses
https://www.linkedin.com/pulse/guide-financial-planning-startups-fastercapital/