Managing the financial side of a small business is a learning journey. Many businesses fail to prosper owing to mismanagement so, as an owner, understanding how to navigate the money side of things should be a number one priority. This is a guide to six ways small business owners can make their venture financially sound.
Perfect the Budget
A budget in this context refers to a plan and account of any financial item related to the business. The main point is that everything needs to be recorded for future reference, regardless of how small it may seem. Typical items that should be on a small business budget are:
- Utility bills
- Client bills (incoming and outgoing)
- Staff wages
- Stock and business supplies
- Office equipment and supplies
- Business insurance
- Marketing services
- Accountant and legal services
- Unexpected expenses
A budget needs to be a true reflection of the financial situation so that everyone knows where they stand. When done right, it can provide a model of security and is a tried and tested method of keeping important things on track such as bill payments, supplies requirements, and major expenses. A viable budget is constantly reviewed, monitored, and updated in line with the current circumstance.
Use Loans if Necessary
Though loans are not the first place to turn, they do have their uses if the time is right. There is no place for multiple lines of credit, a line of reasoning explored further on expert sites such as this one. However, if the budget needs a little help to boost things forward, one thought through loan will not harm the business if managed correctly. Keep up to date with payments, do not borrow outside of your budgeting allowances, and ensure the lender is reputable or specific to small businesses.
Consider Your Credit Profile
Everyone has a credit file, but when you become the owner of a business you also gain a business credit score. This must be kept in good standing to avoid running into problems down the line. Do this by not missing payments, not accepting multiple lines of borrowing, and staying within your means. If there is risk associated with a small business owing to the way it has handled its finances, there is an increased chance of rejection for future equity purchases. It also affects the ability to acquire a reasonable insurance policy, real estate ventures, and secure a loan.
Manage Tax Properly
All businesses must pay their taxes regardless of their size and capacity. Therefore, small businesses must account for this eventuality in the budget. Tax bills come every business quarter and can be quite large in their entirety. That is why having a plan never hurts. For example, set aside a monthly payment for tax purposes and then this vital expense simply becomes a part of the normal budget. This also reduces the risk of missing the deadline, not having enough funds, and lessens the chance of financial surprises.
Don’t Quit on Late Payments
Unfortunately, small businesses are often the victim of clients not paying their bills on time, or at all. Should this occur, don’t give up. Have a solid plan in place to account for missed and neglected invoices.
Top Tips on Managing Late Payments
- Have a template ready to send out to save time. Set out a timeframe and expectations with regards to the monies owed.
- Outsource to an external debt collection service.
- Be persistent and keep going.
- Try open lines of communication. There are often legitimate reasons behind missed payments but it still needs resolving.
Think to the Future
The future of the company is as relevant as the present. Where a business is going dictates what happens in current times, and therefore, having a plan for goals and prospects is a sensible move. This action enables realistic projections of targets while providing something to work towards for everyone involved. There is nothing wrong with creating a section in the budget for future goals, and it can even serve as motivation to achieve them.
Factors such as real estate purchases, staff increases, new directions, and marketing can all be set out and followed through with. There is particular value in focussing on marketing strategy campaigns, as these need to be constantly flexible and evolving in line with global events. Expansion and growth are perfect targets for any small business, and they can enhance credibility and motivation as well.
Financial security only happens when things are planned meticulously. All details have to be traceable, and all dealings must be legal and moral. Financial roadblocks will naturally occur sporadically; however, with some intuitive management, there will always be a path forward. Keep the small business on track with a solid budget and have a clear focus on goals for the future.