Finances are the lifeblood of any business. Small businesses typically start out with $10,000 or less, and this money can quickly dry up if not managed properly. And the National Small Business Association reports varying costs of doing business account for the biggest challenges facing small businesses.
Because of these hurdles, only 20 percent of new businesses survive past their first year of operation. These finance tips for small businesses will keep your company from becoming just another statistic.
1. Keep Records of Everything
Poor bookkeeping is the number one reason businesses of any size fail. It’s absolutely vital to keep records of all financial transactions, inventory, payroll, accounts payable/receivable, etc. This isn’t just a finance tip for small businesses - it’s necessary for the survival of every person and organization. Records make filing taxes easier and give you a realistic look at your financial health.
2. Separate Business From Personal
The majority of small businesses (75 percent, to be exact) are self-funded, and 30.07 percent of small business owners don’t take a salary. When both you and your business are struggling financially, it can be tempting to mix money between the two. Resist that temptation, as it can very quickly sink a business —taking you down with it. Any money spent on personal items and experiences should come out of your salary, not the business fund.
3. Maintain a Budget
Without a proper budget, it’s impossible to plan for future expenses. A budget gives control over the business and gives you a chance to evaluate how the business is doing compared to previous periods. There is a plethora of business budgeting software available, so there’s no excuse not to keep an accurate budget for your business.
4. Remain In-House Whenever Possible
Many roles can be outsourced to agencies and freelancers, but it can get prohibitively expensive. Keeping work in-house doesn’t always save those costs, but it’s easier to track employee production and work quality, along with maintaining trade secrets. This level of control ensures you get the most bang for your buck on the money you do spend.
5. Track Marketing and Advertising ROI
Forrester Research estimates over $100 billion is spent on marketing each year in the U.S. Small businesses are spending approximately 4 percent of their revenue on marketing. This money should not be spent aimlessly, so it’s important to accurately measure and prove an ROI for every marketing dollar allocated. Otherwise, you’re throwing money in the wind.
6. Invest Excess Liquidity
When your business is profitable, it’s important to invest those profits. Obviously reinvesting in the company is the best option, which means investing in R&D, physical assets, IT, employee benefits, and PR. Having spare cash in the bank can be useful in staying ahead, but some of that money can even be invested in other business stock, bonds, and other vehicles. Consult with a professional money manager to determine the best ways to invest your money while you have it.
7. Shop for Credit When You Have Money
Banks only approve around 24.1 percent of small business loans. This is because most small businesses wait until they’re in trouble before applying. It sounds counterintuitive, but the best time to apply for a business loan is actually when your business is doing well. That’s when you’re most likely to be approved. You’ll be able to keep up with repayments and can save the money for a rainy day.
8. Monitor Operational Expenses
Budgeting isn’t a one-time deal. Operating expenses need to be constantly monitored so you can discover ways to potentially, save money. If a supplier or utility raises their prices, start shopping around for better deals. Routinely negotiate your bills and make a point to understand any fluctuation in expenses, especially recurring ones. Doing this proactively saves a lot of money in the long run.
9. Hire a Professional
It’s normal for an entrepreneur to want to do everything, but that level of multitasking leads to problems. Studies show multitasking causes detrimental health effects like stress, distractibility, depression, and memory loss. It also makes you less efficient and could lead to mistakes at work. The last place you want to overlook something is in the company’s finances, so an accountant or bookkeeper should be one of the first people you hire for your company.
10. Leverage Free Software
Software is expensive, especially when you factor in costs of implementation, training, maintenance, and support. Thankfully there are plenty of free options available for everything from spreadsheets and word processing to communications, marketing, employee time tracking, and more. Don’t spend money on software unless there’s no free alternative available.
By following these finance tips for small business, you will be closer to building a solid foundation that will keep your doors open for years to come. If you have any tips we missed, please feel free to leave a comment below.