It can be challenging for any business owner to manage the business finances. While it is true that how good the product and/or service of your business lead to company success, poor financial management could unravel all the time and hard work you put in.
According to a survey, the number one reason why most small businesses fail in the first few years of operation is poor cash flow management skills. In fact, it comprises 82 percent of business failure.
Why Is It Important to Manage the Finances of Your Business
Educating oneself on financial management is crucial for any business owner. Being able to understand the basic skills necessary to run any business fosters a stable financial future and helps minimize the chances of failure.
Some of these skills include simple accounting tasks, loan application, and financial statement preparation.
Also, other than educating oneself self on financial management, one also has to learn the art of staying organized. This means keeping your receipts and bank statements properly filed. Doing this helps reduce unnecessary workloads for your accounting team when they have to go over the company’s financial records.
Advice in Managing Small Business Finances
1. Compensate Yourself
When running a small business, it can be easy for the owner to put all the money into the business’s day-to-day operation. Most of us are thinking, putting in extra capital would help the business grow anyway.
But according to experts, small business owners should not overlook the importance of paying themselves. The role they played in the company should be compensated accordingly.
A lot of business owners overlook the value of compensating themselves. They should remember though that they are also part of the business and need to be paid accordingly too.
2. Embrace Growth Opportunities
Aside from paying oneself, it is also important for small businesses to put money and invest in growth opportunities. Doing so helps steer one’s business towards a healthy financial direction, ultimately leading to business success.
Investing in business growth means providing continued upskill training and education to employees, investing in the latest equipment and facilities, and embracing a progressive outlook in running the business.
A business of any shape or size that continually introduces innovation attracts younger talents who are willing to stay longer with the company.
3. Never Be Afraid to Take Loans
It is undeniable that loans are scary. If not handled correctly, it could lead to financial repercussions setting your business to failure. Nonetheless, obtaining a loan is crucial as you need an influx of capital to run your business.
Being a business owner means the willingness to take risks. One of which is applying for and taking loans.
4. Maintain Good Business Credit
Whether you are running a business or not, maintaining a good credit record is crucial.
In line with running a business, you would need to maintain good business credit for several reasons. With a good credit record, not only can you obtain more loans in the future, but it comes in handy as well in purchasing more commercial real estate and acquiring insurance policies.
If however, your business has terrible credit, obtaining approval in any of the above-mentioned transactions is difficult. Thus, make sure to pay off your company’s debt fundings as soon as you can and refrain from taking out loans with interest rates you cannot afford.
5. Meet Tax Deadlines
Just as important it is to maintain good credit, paying your taxes on time and filing your returns is important. Doing otherwise means additional expenses to pay for fines and interests incurred.
With proper planning, you can avoid these unnecessary costs and you could even obtain certain benefits and exemptions like capital allowances on investment properties.
In order to keep your business up-to-date in meeting tax deadlines, it is important to keep accurate records. It helps save your business time and money, plus you are certain that you only pay the amount of tax that you owe.
6. Maintain a Good Billing Strategy
It is unavoidable for businesses to have some clients that are consistently late when it comes to invoices and payments. But it is important to emphasize that good cash flow management is one of the keys to ensuring healthy business day-to-day operation.
Thus, if you find it difficult to collect payments from certain clients or customers, perhaps it is time to add a bit of creativity in billing them.
Rather than continually badger with repeated phone calls and invoicing, what you can do is tweak the payment term. Let us say, you give certain discounts on the total bill if the client or customer is able to pay the invoice within a certain number of days.
Good financial management of your business is not something you could just overlook. Plan for the future with the help of these tips.