A small business is usually a one-person team or a few people juggling various tasks. It is challenging for a small business owner to manage finances and ensure stability and organization adequately. Small business owners are often the sole laborers or service providers within their business. On top of managing clients, orders, and merchandise or services, financial management can be tricky. Lack of a proper financial management system may harm your business in the long run.
To make your small business financially successful, stay up-to-date with your financial records, pay yourself on time, and have a good credit score, among all the other tips this article will uncover.
1. Create a business plan
You need a proper plan when starting a service- or product-based business. A business plan outlines everything from capital and investment to labor, raw material, and what you will be selling. It is tempting in the early stages of your business to draft one of those fifty-page documents that no one cares about later on. But creating a business plan differs from filling out mundane information in a template-based document. To create a realistic business plan, you need realistic business goals. When estimating costs and expenses, be honest with your calculations.
2. Maintain your business credit score
Insufficient business credit may hinder getting approved for insurance policies, purchasing assets, or taking out loans. It is advised to apply for a business credit card early on to pay for your business expenses. The monthly credit limit will help you stay within budget and pay off any accruing expenses. Business credit cards are convenient for financing short-term needs or getting business rewards and accounting software to manage business finances. To keep a good financial score, pay off any debt as soon as it arises. Try not to run a negative balance on your business credit card, as it can hamper your credit score.
3. Set a budget
A realistic budget is crucial for a realistic business plan. Many new business owners feel overwhelmed by the word “budget.” Still, budgets help you prepare for the worst – financial crunches and setbacks. Set aside funds for whatever equipment is necessary for your business. Assign a budget for marketing, raw material, or any other expenses that might arise. Don’t just create a budget. Stick to it. Many small business owners get excited when starting a business plan or setting up a budget but don’t follow through with it. The golden rule to sticking with your budget is to make it realistic – nothing too strict or too lax.
4. Track every expense
Tracking business expenses is second to setting a budget. No matter how minor or massive the expense is, record it. Log the fuel expense if you use your vehicle to travel to the post office. Tracking your expenses will also help you know what to charge for your services or products. Also include the time invested in your business activity when monitoring expenses. In case of budget blowouts, revise your spending habits. Every month, allocate time to review your expenses and funds left behind.
5. Reduce costs
Cost reduction is an effective way of managing business expenses. Though it may sound easy, cost management is what most small and medium businesses struggle with. Since small businesses have fewer members on the team, it is easy to get caught up in tasks and forego opportunities and discussions for updating business systems or processes. Seeking cost-effective ways of designing, creating, and delivering products or services may require brainstorming and time, but it is worth it. In addition, external factors like raw material, labor, and fuel prices increase yearly. Therefore, it is only feasible to review business expenses monthly and yearly to introduce cost-effective mechanisms.
6. Invest in your business
When running a small business, you want to ensure you are putting money back into your business to keep it running. Business strategies like Profit First allow you to pay yourself, finance your expenses, and benefit from profits. These profits can then be invested into your business to improve its development and marketing. You can build a strong brand identity, reach your target market, and plan a growth strategy with the help of a reliable business marketing service. These services can help you reach a wider audience and promote your business.
7. Pay yourself
As tempting and beneficial as it is to invest in your business, remember to pay yourself for all your hard work. While extra capital can help your business grow, don’t undermine your role as a business owner and compensate yourself for your service or labor. Also, ensure your business and personal finances are separate and in good shape.
8. Take loans when necessary
Don’t get intimidated or flustered by loans. Loans can be used in various ways like financing equipment purchases, renting out a commercial property, or repayment of a debt. Loan proceeds will also improve your cash flow and credit score. It can also help build better connections with suppliers and contractors.
9. Billing strategy
Every business comes across a client that may be late on payments. As a small business owner, managing finances is equally essential for managing cash flow and ensuring your business runs smoothly. It may be the right time to set consistent billing strategies if you face late payment issues. Instead of bombarding the client with phone calls and messages, change your billing strategy. Ask for advance payment or consider the “2/10 Net 30” approach, which involves giving the client a 2% discount if they pay within ten days of the invoice. Such practices make sure you get paid on time.
10. Increase cash flow
Small businesses have relatively inconsistent cash flows as operations are not as stable as for medium- or large-scale enterprises. However, there are ways to improve cash flow through “injection strategies” like:
- Announcing a flash sale
- A special offer for existing customers
- Offering incentives and promotions to customers in exchange for referrals
- Creating training
- Creating incentives to facilitate early payments
Read More: Top 7 Marketing Tips For Your Small Business
Not every small business owner has financial management skills. Still, with trial and error, you can become well-versed in the financial dealings of your business. In case of any time or resource constraints, reach out to an accounting professional or hire a bookkeeper to help you manage funds for a smooth business flow.
Mahesh Kumar is a dynamic marketing consultant and tech enthusiast with a passion for driving business growth through his innovative strategies and cutting-edge technology. With 6 years of experience in the industry, he has helped numerous businesses leverage the power of digital marketing to reach their target audience, build brand awareness, and increase sales.