How you manage your small business finances could be the difference between failure and long-term success.
Taking a proactive approach and having the right systems in place will make all the difference.
If you’re looking to boost profits and guarantee your longevity, use these eight tips for managing your small business finances.
Improve Your Credit Score
Your credit score plays a significant role in your options as a small business.
It’s one of those things that tends to get overlooked until you need it.
However, having a poor credit score can impact your success with potential investors or limit your options when trying to secure a business loan.
Monitor your credit score each month to ensure that there are no surprises down the road.
The idea that checking your credit score will impact it is a myth. Only hard inquiries (i.e., from loan providers) has an impact.
Consider using a credit repair service if you need to remove inquiry or negative items.
Consult with a Financial Advisor
Working with an accounting consultant or financial advisor can help you put processes in place.
Additionally, these experts will be able to take a high-level look at your business and make useful suggestions for improvements.
Working with a financial advisor is especially important for small business owners, who often get their personal and business finances entangled.
A financial advisor can help small business operators plan for retirement and put boundaries between their accounts.
Outsource Administrative Tasks
If regular accounting and administrative tasks like invoicing and updating financial documents keep falling behind, it’s time to outsource.
Having these documents up-to-date is well worth the return on investment.
For many entrepreneurs, wearing multiple hats is nothing new. If hiring an employee isn’t a viable option, consider hiring a virtual assistant for a few hours of administrative work each month.
Consider the opportunity cost of continuing to handle these tasks yourself or letting them fall behind.
Create a Money Management System
To successfully manage your small business finances, you need a well-defined money management system put in place.
To create a money management system, you need to consider where the money is going once it comes into your business.
As the owner, how are you paying yourself? What percentage is reinvested into the business? What percentage goes toward expenses?
Outlining a money management system gives you a framework to operate around. It creates consistency within the business so that there are no surprises.
Stick To Your Budget
If you don’t have a budget in place, it’s time to develop one. For a budget to be effective, it should be dynamic.
Take a look at historical fluctuations in your business and create a budget that suits your seasonal needs.
For example, if you have a construction business, you’re likely to see a big surge during the summer months, and tighter times during the winter.
Having a budget that reflects those shifts can help you set priorities when planning for the months ahead.
As a part of sticking to your budget, you’ll also need to track your expenses.
Set aside time each week to update and record your expenses, cataloging receipts for tax season.
Take a deeper dive each month to ensure that your expenses aren’t outpacing your budget.
There are numerous apps you can use to help this process, as well as outsourcing to a virtual assistant to keep you on track.
Use the Cloud
If your office is filled with mountains of paperwork, it’s time to bring your business into the future.
Make an effort to go paperless, using cloud storage to keep and file your important documents.
Not only will this help you stay organized, but it will increase efficiency within your business.
You’re less likely to be missing a document during an audit, and you’ll cut back on office supply expenses as well.
Use a cloud-based accounting program like Quickbooks to manage your finances on the go.
Prioritize Cybersecurity
Many small businesses make the mistake of overlooking cybersecurity. Small business owners often fall victim to the myth that cybercrimes target big corporations.
However, small businesses are often the target because they’re less prepared.
Small businesses that experience a data breach will often go under within the year.
Even if you manage to pull through, the loss of key data and delays caused by the issue can cause immense financial strain— and that’s not considering potential lawsuits for failing to protect customer data.
Cybersecurity is a key component of managing your business finances.
Doing simple things like having a locked wifi account, installing a simple firewall, and backing up your data can make a tremendous difference.
Build Savings
What would happen to your business if you were forced to shut down for a month? Many small businesses are discovering the answer right now.
Set aside money each month for an emergency savings account. A good starting goal is to save enough to pay the bills for one month of inactivity.
The next step is to cover three months’ worth of bills.
With these eight tips, you can put smart systems in place to manage your small business finances and persevere in troubling times.