tips for managing small business finances
tips for managing small business finances

10 Tips for Managing Your Small Business Finances

Your small business might offer the best product or service the market has ever seen, but if your finances aren’t in shape, you’re dead in the water. We know that not everyone’s a number nerd! Regardless of your feelings about your high school math classes, managing finances is one of the most critical aspects of small business management. When you take control of your finances, you can feel financially confident and set your small business up for success.

Here are 10 things you should do to stay on top of your finances:

1. Pay yourself

Many small business owners neglect to pay themselves, especially at the outset. They believe it’s more important to invest the extra capital in the business and pay everyone else. Some entrepreneurs will pay their personal expenses out of the business account while not taking a salary. If this sounds like you, remember that you’re part of the business, and you need to ensure that your business and personal finances are in good shape. Allocate a portion of profits as your salary to maintain a work-life balance and personal financial stability. And whatever you do, don’t mix business and personal expenses. The simple solution (as long as you don’t have an S-Corp) is to maintain separate personal and business checking accounts and transfer money between them in order to pay bills.

2. Invest for growth

This one is for those with the opposite problem of point one—don’t take all of the profits out of the company. Businesses that continue to grow, innovate, and attract the best talent need to demonstrate that they are willing to invest in the future. Keep an eye on where things are headed and set aside funds for growth opportunities to ensure your business thrives over the long run. 

3. Leverage loans wisely

Don’t shy away from loans; they can provide essential capital for equipment, team growth, and cash flow management. Sure, you can lean on your personal funds or ask friends and family members for help, but securing outside funding is one of the top ways entrepreneurs finance their businesses. Investments and loans offer the potential to build your business faster and with less personal risk.

You may also be interested in: How to finance a small business purchase

4. Build strong business credit

If you are looking for external funding or loans, remember that lenders rely on credit scores to evaluate the risk of their credit applicants. With poor business credit, getting approval for the transactions and acquisitions you need to help your business grow may take more work. Work to establish good business credit to increase your business financing options and facilitate future transactions and acquisitions. Prioritize paying off debts promptly and avoid loans with interest rates that you can’t afford. 

5. Optimize billing strategies

Every small business owner has had to deal with clients who are consistently late on their invoices and payments. It’s a killer for cash flow! And cash flow is the biggest killer of them all, with over 80% of business failures attributed to a lack of cash. If you’re struggling to collect payments from certain customers or clients, try to develop creative billing approaches to encourage timely payments and improve your business’s cash flow. For example, change your payment terms to upfront payment, or offer an incentive for early settlement. 

You may also be interested in: 7 tips to manage your small business cash flow

6. Streamline tax payments

It’s not always easy for small businesses to cough up a chunk of cash at tax time. If you struggle to pay your quarterly estimated tax payments, change to monthly tax payments to ease your financial burden by treating tax payments like any other monthly operating expense. 

Remember that proper tax planning may reduce your tax obligations to the IRS if you know how to take advantage of tax credits, write-offs, and tax deductions. There’s a costly misconception that tax planning is something that happens when preparing a tax return. It’s true that tax season offers a time to get all of your financial data organized; it’s also a retrospective activity, meaning that it’s often too late to take advantage of many strategies for reducing taxes. At a minimum, ask your CPA to review your books before the end of the year.

You may also be interested in: Small business tax: Tips for a stress-free tax season

7. Monitor books regularly

If you’re not keeping an eye on the numbers, how can you expect to understand your business’s financial position? Even if you’re working with a bookkeeper or another financial professional, you should regularly review your financial records to detect anomalies and gain insights into potential risks. We recommend following a consistent month-end close process. Here’s a free month-end accounting checklist you can use to simplify your month-end close process and make informed decisions that drive success.

8. Balance expenditures and ROI

Measuring business expenses and return on investment (ROI) helps you make data-driven decisions about which investments make sense and which may not be worth your while. If you don’t know how hard your money is working for you, you could end up wasting money on things that aren’t paying off. For example, you can track your spending on marketing tactics and use client acquisition and retention data to see which activities bring the best return. 

9. Establish financial protocols

We know that small businesses are often strapped for time and money, but that shouldn’t prevent any small business owner from implementing internal financial controls. Good financial habits and protocols can go a long way in protecting your business’ financial health. Dedicate time to review and update your financial information and implement protocols such as monitoring and forecasting cash flow, requiring double sign-off on invoices, and keeping comprehensive records. 

You may be interested in: 27 essential internal financial controls for small businesses

10. Seek professional support for your business finances

Small business owners wear a lot of hats, and although it’s essential for one of them to be the ‘Financial Management Fedora,’ there’s no need to do everything yourself, and you can’t be expected to know it all. A professional CPA firm can help you keep track of your income and expenses, implement cloud accounting software, help you with tax planning and compliance, and offer valuable insights and recommendations. Reach out to our team to schedule a consultation.

You may also be interested in: What you need to know about the Beneficial Ownership Information filing requirement

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