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Are you operating on a bootstrapped budget? With many small business owners rolling with the smallest of profit margins, success can be a financial balancing act.
If you’re running a business and looking to improve your budget management skills, here are 10 small business finance tips to follow:
1. Be proactive with your bookkeeping
Because of the number of hats you wear as a small business owner, it's understandable when one of your many priorities gets backburnered. And according to LinkedIn, procrastinating on bookkeeping is one of the most common mistakes small businesses make.
Get a clear picture of your budget so you don’t end up spending money on tax penalties and late payments. If you can't manage your business accounting on your own, hire someone, invest in bookkeeping software, or go to a CPA or business accountant for help. Even if you’re skeptical of the financial hit, it’s always worth avoiding bigger problems in the long run.
2. Don't overcomplicate things
Low-cost apps and software are your friends! As someone who built it from the ground up, you may sometimes feel like you can create your own small business solutions. After all, how hard can it be to manage your marketing, accounting, HR, etc.?
The fact is, it's almost always easier and more cost-effective to see if someone else has solved the problem first. From payment processing to e-commerce platforms to bookkeeping software, Nerdwallet has an excellent list of small business apps to consider.
3. Forecast your cash flow over the year
Forecasting should be routine for anyone that knows the ins and outs of budget building. Most small businesses are cyclical. If you're in retail, certain holidays will be best for business. If you're in, say, tax accounting, your busy season will be in the February-April window.
Important note: Don’t forget that even when your business is doing well, there will be down times. These could be opportunities to improve your cash flow and to face those low margins head-on by accounting for them when planning your yearly budget.
4. Make sure your marketing is cost-effective
Some types of marketing have a higher return on investment (ROI) than others for different industries. Find marketing channels that pay for themselves, rather than wasting money using disjointed marketing tactics. For example, short-form videos, influencer marketing, social media messaging, and search engine optimization (SEO) are the highest trending ROI marketing strategies for 2023, according to HubSpot.
5. Revise your budget regularly
The costs your business accrues aren't static and neither are your income sources. You might have to hire more employees over the course of the year to respond to growth in your market share, or your sales cycle may shift. If you're not responding to changes by revising your budget and forecasting accordingly, you won't be prepared for financial changes.
6. Understand your risks
Like all businesses, yours has long- and short-term risks. Workplace injury, theft, and natural disasters are just a few risks that your business may face, and it's important to assess and mitigate them however possible, but most importantly, understand that they’re there. If you allow risks to catch you off guard, it could be damaging to your finances. Plan by building a contingency plan for various scenarios.
7. Separate your personal and business finances
It can be tempting to look at your business as an extension of you, but this can overcomplicate the process of managing your finances. It's important to treat your business as a separate entity from yourself.
Separate your bank accounts. Pay yourself a paycheck that's separate from the money you set aside to cover unexpected costs for your business. Keep track of the times you use personal items for business purposes and vice versa. In the long run, this will make it easier to balance your business finances and your personal finances.
8. Look for contingency cuts
"Contingency cuts" are line items that you can cut from your budget for a limited time in a financial emergency. For example, your team can agree to defer paychecks until your business is in a better financial situation, or you can scale back marketing campaigns until you can afford them again. This isn't ideal, but it can be a way to stay in business during your low points.
9. Don't spend prematurely
The goal of your business should be growth. This can be a double-edged sword, however, as business owners often fall prey to something called "premature scaling." As LinkedIn summarizes, “premature scaling refers to an effort to grow your business at a rate faster than you can afford to sustain.”
This means that you should be cutting costs and saving money, even when it seems like your margins (and your business) are growing.
10. Don't be afraid to ask for help
Whether it's for a discount from a vendor or simply for tips from a trusted advisor, asking for help should always be an option, especially when you're feeling overwhelmed by a tight budget or a negative turn of events. Don't let your pride be the reason your small business fails.
For more information
For more information to help your small business, check out the BBB business news feed and the BizHQ.
BBB Great West + Pacific contributed to this article.