Small business owners might struggle when it comes to managing their finances. Some of the main reasons why small businesses succeed are because of the skills showed in the product manufacturing process or service providing protocol. But if business owners lack financial management skills, things can go downhill quite easily. Financial management might feel like a chore, but slipping into bad financial habits is more dangerous to you and your company’s financial stability.
The first step to better financial management is gaining more financial education. Business owners must gain the basic skills of properly running a small business. Understanding simple accounting, applying for loans, drafting financial statements and so on allows business owners to create a stable line for their businesses. Staying organized and understanding basic financial rules is the cornerstone of a thriving enterprise.
Understand the importance of paying yourself a wage
Many business owners neglect the importance of setting a clear wage for themselves. For many entrepreneurs, keeping the business up and running and paying off employees’ wages is more important than their own salaries. Business owners are a key contributor to a financial economic entity and monetary compensation for their work is necessary. Business owners should make sure that their companies and their own financial stability are equally healthy. They should understand that they are part of the business and in case their business fails, they will most likely remain without a dime in their accounts.
Plan for growth investments
Apart from paying themselves wages, business owners should look forward to putting money aside and researching growth and investment opportunities and solutions. By doing so, small business owners will help their establishments thrive and develop in a healthy financial direction. Small businesses that want to continue growing and innovating tend to attract the best employees and investors and have more stability to economic and political changes that influence the local market. There are several types of business financing solutions managers can access when trying to develop their businesses. Business loans are one of the most accessible financing solutions out there. As long as companies have at least a year in business and a minimum of $100k in annual revenue, they may be eligible for some alternative financing products in the Canadian market. However many more factors are considered by the institutions, in order to make the final decision.
Develop a good billing strategy
All businesses “enjoy” having a client that is always late with their payments. Being able to effectively manage your establishment’s cash flow will ensure a better operational flow and better financial management capabilities. When small enterprises struggle to collect their invoices or payments from their clients, this puts pressure on their company’s stability and fluidity to market changes. Experiment with different apps and billing tools that will force your chronic late-payers to squeeze their payments on time. Some apps and billing systems offer 2% deductions if the client pays the bill within 10 days. For many clients, this may be one of the biggest motivators to pay on time.
Spread out your tax payments
Many business owners face their quarterly estimated tax payments with fear. In such cases, it’s a great idea to spread the quarterly tax payments into monthly tax payments. Treating tax payments like any other monthly payments helps you gain more control over your enterprises’ cash flow, experts say.
Keep a close eye on your books
While this seems obvious, many entrepreneurs still neglect to keep a close eye on their books and let their accountants handle everything. Set a day monthly and review your books, even if you collaborate with a bookkeeper. By doing so, you will become more experienced with your company’s finances and identifying potential financial crime.
Concentrate on ROI and expenditures
Becoming familiarized with your expenditures and return on investment will offer you a better picture of what investments are worth and what investments aren’t. Small business owners are more restricted when it comes to investment opportunities and have lower financial flexibility than their large counterparts. Being aware of which are the most effective and profitable ways of spending your company’s money is essential in SMEs’ case.
Develop healthy financial habits
Small business owners usually lack clear internal financial protocols. Even small tasks like bookkeeping should be closely reviewed and analysed. Implementing clear financial protocols will go a long way when it comes to your company’s financial health and will allow you to prevent fraud and associated risks. Not knowing your enterprise’s potential vulnerabilities and legal problems will prevent your company from growing and expanding, risk-free.
Develop dept management skills
Effective debt management is something that all business owners should grasp. Debts are a natural part of business expansion and growth. Knowing how to manage one and lower the risks at which poor debt management might expose your business to is necessary if you want to access financial products in the future in an easy and fast fashion.
Never mix business and personal accounts
New business owners might be tempted to do this particular mistake, but it’s always better to keep records separate when it comes to business vs. personal affair balances. Although a simple task, at first sight, it can be extremely difficult for someone with no financial skills and education to separate these two and keep them separated. Even experienced accountants will be confused when their clients do this mistake and fixing it later will take some time. Instead of having your accountant separate these later and making their time more difficult, separate those from the beginning and avoid the issue altogether.
Financial management is something that fresh business owners might not be familiar with. However, with an accountant’s guidance and some efforts, you will be able to learn how the complicated financial process runs. This is essential for all small business owners, as their enterprises’ financial health strongly depends on it. Get familiar with financing solutions in advance. You will have to meet some requirements and facing the unfortunate truth that you cannot apply for a business loan because of a series of reasons will also damage the well-being of your establishment, in the long run.