A lot goes into running a successful business. You need a strong team, a good product or service, marketing that reaches the right target, and more. But a part of business success that often gets underrated is the importance of managing your finances.
Improperly managing your finances can often spell the end of your business, and ultimately lead to failure. You need to have a financial plan and strategy, always be aware of how much you are bringing in, and ensure you are always prepared for tax time.
With that in mind, this guide is going to go over a few good tips to help you successfully manage the finances of your small business and stay on track.
Build Your Business Credit Score
First and foremost, you should make an effort to build up your business credit score. If your credit isn’t in a good place, it can make borrowing money more difficult and a bad credit score can often show vendors, lenders, or suppliers that your business carries a lot of risk.
You can build up your business credit score by using credit responsibly, keeping your utilization low, and making sure you always make payments on time. You won’t get great credit overnight, but with enough time and some dedication, you can certainly improve your score as a business.
Even if a bad business credit score doesn’t disqualify you from borrowing money, it will be more expensive due to a higher interest rate. Also, if you have collections or other negative marks on your credit report, it is a good idea to deal with them. Getting these removed can improve your chances of getting approved for credit and loans.
Make sure to check out your business credit report often, to ensure there are no mistakes or other issues that are negatively impacting your score.
Use Software and Technology When Possible
Trying to manage all of your finances manually can often be a disaster waiting to happen. Not only can things be misplaced, but mistakes can be made incredibly easily. It also takes a lot more work and effort to record every transaction or keep track of payments with paper and pen.
Instead, consider using technology when you can. This includes pieces of accounting software, tools to automate invoices, software to track sales and/or inventory, and more. It can make your financial management much simpler, quicker, and more effective. Sure, getting used to new software and methods of doing things may be difficult, but once you get a hang of it, it will save you a ton of time, effort, and money.
There are many options out there, and many of them are affordable enough for businesses of all shapes and sizes to try out. Make sure to do your research on the different options, and consider trying them out to see which works the best for your needs.
Monitor Your Spending and Create a Budget
Another important part of managing your finances is monitoring your spending to ensure you aren’t going overboard and putting your company at risk. Perhaps the best way to monitor your spending as a business is to create a budget. A budget will show you exactly how much you are spending every month, so there are no shocks or surprises.
Not only does it help you see how much you are spending, but also where that money is going. This can help you identify areas where you are spending too much. In addition to watching your spending, a budget can also be helpful to track cash flow and see how much revenue you are bringing in.
Of course, budget only works if you put in the effort to keep it current and updated, so make sure to stick with it. You can budget manually, but it is often better to use a piece of budgeting software to be able to enter and check things quickly, and from any device.
Keep a Cash Reserve
Another important thing to keep in mind is the importance of keeping a cash reserve. This is simply a little bit of extra cash that you keep around, just in case your business needs it for something.
An unforeseen issue popping up is common in business, and you need to be prepared. This could be a machine breaking down, your revenue slowing down, property taxes increasing, suppliers adjusting their prices, and more.
The amount you should keep varies, and can often depend on the costs associated with your business. The higher your costs, the more you should keep in reserve in case business slows down. If you don’t keep any extra in case of a business slowdown or unforeseen issues, your company could find itself in some trouble if you get unlucky.
This cash should be kept somewhere stable and secure, where it can be accessed quickly and easily if need be. For example, you wouldn’t want to keep this in a risky investment.
Don’t Be Afraid to Borrow
While keeping cash reserve is good, don’t be afraid to borrow money, either. Many businesses are hesitant to borrow, either for fear that things will get out of hand and they won’t be able to pay it back, or because they would simply rather spend money they actually have.
However, as long as you do it intelligently, getting a business loan can be a great way to reduce financial strain on your business. It can help you expand your operations, deal with surprising expenses that come out of nowhere, and generally scale up over time.
Of course, whenever you get a business loan make sure to take a close look at things like the terms, interest rate, and other rules. Also, ensure the lender you are working with is legitimate and trustworthy, too. If not, you could find yourself locked into a situation that hurts your business more than helps it.
In conclusion, we hope that this guide has been able to help you successfully manage the finances of your small business.