Your small business takes money seriously. Having your financial affairs at the front of your mind as a business owner means you always know how much cash is coming into your business—and how much is going out. If you want to make smart choices and grow your business well into the future, you need to take your finances seriously.
The harsh reality is that 29% of small businesses fail because they run out of cash. Even more shocking is that 82% of small businesses report cash flow problems. Keeping ahead of your finances will allow you to avoid debt, save money, and overcome obstacles. Here are the best tips for managing your finances as a small business.
Separate Business Accounts
As a small business, it’s easy to mix up your personal accounts and your business accounts. Instead, make sure they’re separate by opening all new accounts for your business. You can use your Federal Identification Number (FIN) to easily open savings and credit accounts for your business. Think of this like your businesses social security number. It’s your first step to making sure everything is clearly separated.
Keep Track of Invoices
When you’re paying for expenses left and right, it’s easy to lose track. Similarly, when things are going well, it’s hard to know which clients have paid and which haven’t. Creating an easy to manage invoice system is crucial. Luckily, there are a lot of free templates online to get you started.
It might even be smart to use digital invoicing so you don’t have to worry about losing paperwork in a busy office. Having a digital paper trail is also an easier way to make sure you get paid. As always, keep an accurate account of money entering and leaving your business via an expense and income report.
Pay Yourself First
A lot of new small business owners struggle to know just how much to pay themselves, especially when they’re first getting started. Pay yourself too much, and you run the risk of having too little funds for your business. Pay yourself too little, and you can’t afford your living expenses.
A good rule of thumb is to pay yourself first, but only take 10% of earnings. This helps you test the profitability of your business. You’ll have a safety net for unexpected expenses, but you also won’t suffer personal consequences like not being able to afford your own personal costs of living.
Don’t Spend Too Early
When you’re just starting a business, it’s tempting to go all in right away. Of course, you want quality tools to build your business, but know when it’s too much too soon. If you spent too much money prematurely, you run the risk of wasting your time and money on things you don’t need. Hold back when it comes to business cards, signage, promotional materials, or larger investments until you see real revenue.
Lower Your Expenses
This tip ties into the previous one. Until you know just what you need to run your business, keep your expenses low. It’s true you need to spend money to make money, but you should do so wisely. If you find you’re spending too much on materials, for example, look into alternatives.
Knowing how to lower expenses responsibly is a way to create a lean business plan. You want to grow quickly, but without wasting money. Always look for ways to make running your business more cost-effective.
How are you managing the finances in your business? It’s always a good idea to stay on top of your finances. There is a lot of competition today among small businesses, and that means learning how to manage the funds you have to the best of your ability. These tips above will help you succeed no matter what the market throws your way.