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Managing Small Business Finance
Managing finances can even then be a challenge for any small business owner. Often, the reason your small business is then very successful is simply because of the skills you bring to making your product or even then providing your service. If you do not then have a lot of experience with managing business finances, it can then feel like a chore and you could then even be slipping into bad financial habits that could one day harm your business.
The Benefits of Managing Your Business Finances
The most important step for any business owner (Managing Small Business Finance) is to simply educate themselves. By understanding the basic skills that are been needed to run a small business – like doing simple accounting tasks, applying for a loan or drafting financial statements – business owners can even then simply create a stable financial future and also avoid failure. In addition to education, staying organized is a major component of sound money management.
“There is nothing more terrifying, costly or even risky than showing up at your accountant’s office at the end of the year with a shoebox of receipts and also nine of your last 12 bank statements,” said Ryan Watson, co-founder and even the principal of Upsourced Accounting. “It is impossible to overstate the importance and also benefit of properly tracking your financial information throughout the year.”
Tips/Guidelines for Managing Small Business Finances
Here are a few things you should do as a small business owner to stay on top of your finances.
Pay Yourself
If you are then running a small business (Managing Small Business Finance), it can be very easy to try and put everything into day-to-day operations. After all, that extra capital can even then often go a long way in helping your business grow. Alexander Lowry, a professor and also director of the master of science in financial analysis program at Gordon College, said small business owners should not overlook their own role in the company and should simply then compensate themselves accordingly. You want to ensure that your business and also your personal finances are in good shape.
“Many SMB owners, especially at the outset, neglect to simply then pay themselves,” he said. “They [believe] it’s more important for you to get the business up and also running and pay everyone else. But, if the business does not then work out, you will not have ever paid yourself. Remember, you are simply part of the business and you need to compensate yourself as much as you pay others.
Invest in Growth
In addition to paying yourself, it’s also very important to set aside money and even look into growth opportunities. This can then allow your business to thrive and also simply move in a healthy financial direction. Edgar Collado, chief financial officer of Tobias Financial Advisors, said business owners should always keep an eye on the future.
“A small business that simply wants to continue to grow, innovate and also then attract the best employees [should] demonstrate that they are willing to simply invest in the future,” he said. “Customers will appreciate the increased level of service. Employees will also appreciate that you are investing in the company and in their careers. And ultimately you will then create more value for your business than if you were just spending all your profits on personal matters.”
Don’t Be Afraid of Loans
Loans can be very scary. They can even simply lead to worrying about the financial repercussions that simply accompany failure. However, without the influx of capital you obtain from loans, you might then face substantial challenges when trying to purchase equipment or grow your team. You can even also use loan proceeds to boost your cash flow and also thus face fewer issues paying employees and suppliers on time.
Keep Good Business Credit
As your company grows (Managing Small Business Finance), you might then also want to purchase more commercial real estate, acquire additional insurance policies and also then take out more loans to facilitate all these pursuits. With poor business credit, getting approval for all these transactions and also acquisitions can be more difficult. To keep good credit, pay off all your debt funding as soon as possible. For example, do not let your business credit cards run a balance for more than a few weeks. Likewise, do not also take out loans with interest rates that you cannot afford. Only seek funding that you can simply or quickly and easily repay.
Have A Good Billing Strategy
Every business owner simply then has a client that is consistently late on its invoices and also payments. Managing small business finances also means you managing cash flow to ensure your business is operating at a healthy level on a day-to-day basis. If you are then struggling to collect from certain customers or clients, it might then be time to get creative with how you bill them.
“Too much cash tied up in unpaid invoices can lead to cash flow problems, a leading cause of business failure,” said James Stefurak, managing editor of Invoice Factoring Guide. “If you then have a chronic late-paying customer, which we all do, instead of badgering them with repeated invoicing and phone calls, try a different approach. Change the payment terms to ‘2/10 Net 30.’ This means if the customer pays the invoice within 10 days, they will simply receive a 2% discount off the total bill. If not, the terms are full payment due in 30 days
Spread Out Tax Payments
If you then have trouble saving for your quarterly estimated tax payments, make it a monthly payment instead, said Michele Etzel, the owner of Bayside Accounting Services. That way, you can easily or simply treat tax payments like any other monthly operating expense.
Monitor Your Books
This is also an obvious practice, but a very important one as well. Do your best to then set aside time each day or month to simply then review and also monitor your books, even if you are simply working with a bookkeeper. It will then allow you to become more familiar with the finances of your business, but also even provide you with a window into potential financial crime.
“Do not neglect bank reconciliations and even also spending some time each month on reviewing outstanding invoices,” said Terence Channon, principal for NewLead LLC. “Failing to do this, especially if a bookkeeper is then involved, opens up the business to wasteful spending or even embezzlement.”
Focus on Expenditures but Also ROI
Measuring expenditures and even return on investment can then give you a clear picture of what investments make sense and also which may not even be worth continuing. Deborah Sweeney, CEO of MyCorporation, said small business owners should then be wary of where they spend their money.
“Focus on the ROI that comes with each of your expenditures,” she said. “Not doing this means that you can then lose money on irrelevant or bad spending bets. Know where you are simply spending your hard-earned dollars and also how that investment is paying off. If it is not paying off, cut back and then spend a bit more on the initiatives that do work for you and your business.”
Set Up Good Financial Habits
Establishing internal financial protocols, even if it’s as simple as dedicating set time to then review and even also to then update financial information, can go a long way in protecting the financial health of your business. Keeping up with your finances can even also then help you mitigate fraud or risk.
“As a small business, we are then often strapped for time, money and also then have vastly inferior technological capabilities, but it should not prevent any small business owner from implementing some sort of internal control,” Collado said. “This is especially important if you simply then have employees. Weak internal controls can then lead to employee fraud or theft, and can also potentially get you into legal problems if you or an employee are not abiding by certain laws.”
Plan Ahead
There will always be business issues that will then need to be addressed today, but when it comes to your finances, you simply then need to plan for the future. “If you are not looking five to 10 years ahead, you are behind the competition,” said Tina Gosnold, founder of QuickBooks specialist firm Set Free Bookkeeping.
Different Types of Business Finances – Business Finances
It is very important for you to then remember that business finances (Managing Small Business Finance) are not just about your earnings – they are also about how you spend your money and even where you get it. When it comes to where you get your funding, you should then understand the two main funding categories:
Debt Funding
Debt funding is simply a loan that your company then repays with added interest. Through debt financing, you can even quickly access capital that you might not otherwise be able to get for weeks or even months. Bank loans, government loans, merchant cash advances, business credit lines and even also business credit cards are all forms of debt financing, which you must then repay even if your company fails.
Equity Funding
Equity funding, unlike the debt funding, does not even require repayment if your business fails. However, you will then likely have to grant your funders a seat at the decision-making table. Venture capitalists, angel investors and also equity crowdfunding are all forms of equity funding.
FAQs
What Are the Financial Management Practices of Small Business?
Financial management was simply then divided into three aspects: working capital management, capital budgeting, and financial reporting and even also analysis. Working capital management was then simply determined in terms of cash management, account receivable management, and even also inventory management.
What Is A Financial Plan for A Small Business?
What is a Financial Plan? A financial plan can simply help determine if an idea is sustainable, and also then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is then made up of three financial statements—cash flow statement, income statement and balance sheet.
Why Small Businesses Need Financial Tools?
Tracking a real-time cash flow can then help companies plan ahead, establish prices to then boost profits, and also make rational purchasing decisions. Many small businesses are still using spreadsheets as a budgeting tool because computer software usually then provides it.
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