As a small business owner, your focus lies on growing your income. Managing the company’s finances might be challenging, especially if you don’t have an accounting background. It’s not as difficult as it sounds if you have the right practices in place. We’ve put together a few tips that’ll help you manage the coffers while still expanding your venture.
Pay Yourself First
Many entrepreneurs seem to think that they need to sacrifice everything to build a business. While there may be some luxuries you may need to forgo when starting, your salary shouldn’t be one of these. It’s easy to put every last cent into the company, but you also have personal needs to take care of.
You want to make sure that both your organization and household finances are in good shape. This doesn’t mean that you should drain the companies coffers to entertain every whim you have, but a small, modest wage to cover expenses is essential. If you can’t survive, your enterprise won’t either.
Keep Your Credit Record Clean
As your business grows, you might want to make large capital purchases such as commercial property. To do so, it’s likely you’ll need a loan from the bank, which means your company’s financial rating must be high. It’s best if you understand and check your credit score before attempting a loan.
This way, you’ll be prepared and can use the information to get a better interest rate. In general, there are many times that your company’s credit score will be used, so try to keep it clean from the start.
Save for Growth
Not only is it important to pay yourself, but you also need to set money aside to invest in growth opportunities when they arise. Often business owners tend to spend what they have to cover immediate costs and don’t plan for the future.
Sometimes lucrative options come to light, and entrepreneurs can’t take advantage of them because they’re short on cash. Put aside an amount every month, even a small one, to have available funds if you need to invest in a growth opportunity.
Control Cash Flow
Every organization has one or two clients who pay late, which can become a cash flow problem. Managing small business finances means ensuring that the company is operating on a healthy financial level daily.
If you’ve just started your venture, consider trading on a cash-on-delivery basis until you’re more stable financially. If this doesn’t appeal to you, ask for a small deposit before doing the work.
Clients are more likely to finish paying for something if they’ve already invested some money upfront. If a potential customer flat out refuses to pay you anything in advance, ask yourself why? They might be a client you would rather not have. Many companies have closed down due to large debtor’s books and no cash in the bank.
Monitor the Books
Business owners are busy and eventually get to a stage where they can hire a bookkeeper to control their finances. Be sure to keep an eye on your books regardless of how talented your accounting person is. Everyone is at risk of making mistakes.
If errors are made on your financial records, it could land up costing you money, or even worse, getting your business on the wrong side of the taxman. There’s no need to scrutinize every penny but get into the habit of checking the ledgers regularly for any apparent discrepancies.
Running a small business is complicated enough without having to worry about managing the finances. Before you do anything else, you need to pay yourself first to keep your personal money matters in order. Save some cash to have available when a growth opportunity presents itself.
Balance the desire for good client relationships with the need for regular cash flow to keep your business afloat. If you do have someone else doing your books, get into the habit of checking them regularly to prevent costly mistakes from creeping in.