We’ve all heard the dismal stats on the percentage of small businesses that fail. But what we don’t hear much about—and this is really important—is how many of those businesses might have succeeded if the owner had a rock-solid plan for managing their business finances.
Yes, there are a lot of factors you can’t control when you start a small business, such as market conditions, customer preferences, and supply chain issues. However, finance management is one thing that you have 100 percent control over, and it can make or break your company. The benefits of a holistic financial management strategy are huge:
Ready to take control of your business finances? Let’s take a look at common mistakes to avoid, how to build a strong financial foundation, and ways to create a financial strategy for success.
Every business has its own specific challenges, but there is a pattern of missteps many small business owners make that contribute to financial difficulties.
It’s tempting to use your personal cash and credit to fund your business expenses until you start generating revenue, but resist the urge. Not separating business and personal finances can cause serious tax issues down the line—not to mention make it hard to cover your living expenses.
A business credit card can be a valuable tool when used correctly. However, too many small business owners rack up high balances without sufficient income to pay them off each month. Monitor your credit card spending closely to avoid getting hit with excessive interest on an out-of-control balance.
It’s OK not to have the brightest, shiniest equipment when you’re just getting started. The money you spend on expensive office furniture is money you could have put into an emergency fund. This brings us to our next common mistake ...
As we learned the hard way, you just never know when a global pandemic is going to shut down the economy for months. Having an emergency fund will help your business stay solvent during a simple slow stretch and during a full-blown disaster.
Business insurance is nonnegotiable if you want your company to succeed. Rebuilding after a natural disaster, cleaning up a cyberattack, or paying on a liability claim can ruin your business financially if you aren’t insured.
A budget helps you control your spending and understand where your business’s money is going. Set a budget for everything from office supplies to overtime and stick with it. If you find that you spend more than you budget each month, look for inefficiencies or waste to make up the difference.
Underpaying taxes can land you and your business in serious legal trouble. Work with a tax or financial expert to ensure you understand exactly what your obligations are and when payments are due.
Now that you know some of the pitfalls to avoid when managing your business’s finances, let’s work on building a foundation for success. Here are seven essentials you’ll need to get started:
When it comes to managing your business finances, you can learn a lot from those who have been in your shoes. Here are 10 tried-and-true tips for creating a financial management plan for your business.
As the saying goes, “If you fail to plan, you plan to fail.” You simply cannot run a successful business without a plan that addresses how you will handle the finances for everything from taxes and technology to invoicing and inventory.
Cash flow is the lifeblood of your business. Ensuring you have the right balance of money coming in and going out is a key factor in whether your company will succeed.
Your business won’t thrive if you don’t invest in it. Growth depends on expanding into new territory, refreshing your inventory, and improving technology and infrastructure.
Control your business’s money—don’t let it control you. A budget can help you maintain control of your business’s finances by providing a single source of unambiguous truth for how the company’s money should be spent.
Debt isn’t a bad word. In fact, business loans and lines of credit can be valuable financial tools when used as part of a growth strategy or to supplement cash flow during a slow period.
Financial management software is an excellent investment. Not only does the technology help ensure your bookkeeping is accurate and up to date, but it also can eliminate the expense of hiring a full-time employee.
Small business taxes aren’t paid on the same schedule as your personal taxes. Many businesses submit their estimated taxes quarterly. For simplicity, you can also set up tax payments as a standard operating expense and submit them monthly.
Unfortunately, collecting from certain vendors can be challenging. Customizing a payment schedule for vendors that are consistently late will help ensure you have the steady cash flow needed for day-to-day operations.
Even if you use a third-party financial or accounting service, you need to set aside time weekly to review your books in depth. Knowing what should be in the books will help you quickly identify discrepancies, waste, and problem vendors.
Look ahead three, five, 10 years and think about where you want your business to be financially. Create a plan that breaks down each of your goals into incremental, measurable milestones, and get to work!
No one starts a business with the intention of failing, but if you don’t create a comprehensive financial management plan, your business will struggle from day one.
Managing your business finances effectively takes commitment, attention to detail, and self-discipline, but the results are worth the effort. If you are ready to take the next step in your financial management journey, download the First State Community Bank Guide to Finance Management Success for Businesses for a deeper dive into business banking.