Read up on 13 important tips for successfully controlling your business finances.
One of the most important things that you can do for your small business is to understand and manage your financial affairs. This ensures that the cash is always flowing and you have money in the event of any unforeseen circumstances such as business debt. You need money to continually invest into your business and use it to continue to grow your business.
Here are 13 important tips for keeping control of your business finances (ref: CreditWorks):
- Don’t spend too much too soon. When you are starting a small business it can be tempting to spend a lot of money on items such as business cards, advertising, marketing, signs, a website, vehicles and inventory. This is one of the main reasons that most banks will not advance small business loans. Be frugal with your starting capital and only purchase what is necessary. As you start to earn money you can invest excess funds back into the business for maximum profit.
- Have enough capital. During the starting phase of your business you will need a decent amount of capital to make it through the start up of your business. A good rule of thumb is to have three months money saved for living expenses and enough money for at least three months of business expenses. You should plan to receive no revenue from your business for the first several months.
- Keep track of accounting from the start. Whether you purchase a good accounting software program or hire a reliable bookkeeper, it is very important to ensure that your business finances are under control from day 1. Invoices should be produced and sent out promptly because that is the method that you will use to ensure that money is coming in. Make your payment terms clear and follow up on any invoices that have been sent. Use invoice numbers and match them up with payments.
- Keep private and business bank accounts separate. If you loan money to your business from your personal finances, keep track of it with a paper trail via a shareholder’s loan or a director’s loan. Pay yourself back once the company is making a profit. Keep track of your expenses and bill them to the company if you are paying for them out of a personal account.
- Pay yourself first. Never take all of the profit out of the company. Instead, be conservative and take 10% of the company’s earnings. Set this money aside in a separate, personal account. This can provide a solid safety net in the event of unforeseen expenses or issues.
- Review costs and make financial projections. Always track business expenses and see if there are any areas where costs can be cut. Always have a clear picture of your business finances with a business plan and projections. This will help you to identify and possible obstacles in the future.
- Be frugal with your business profits. When you pay yourself, be sure to pay something that you can afford that is sustainable by the company by setting your salary low. Only offer benefits that have been mandated by the government to your employees. This will help you to remain flexible when lean months occur and not as much income is coming in. This can help to keep your business afloat where excess payments would have a lasting effect on any profit margin.
- Think about renting rather than buying. If you lease equipment rather than buying you will not have to incur maintenance costs and you will only keep the equipment for the time that it is needed. You can also rent your office space so that when you need to expand or relocate it is much easier to do so.
- Expand very carefully. If you want to expand your business, take the time to do it slowly and steadily. When you spend money too quickly on expansions it can spell disaster.
- Keep track of legal fees. Get a few estimates from several well-known local lawyers for the paperwork you need to complete. Don’t run up a large bill that is too difficult to pay. If possible, sign a retainer agreement that clearly sets out what services will be provided and the estimated cost. Put aside a predetermined amount for a retainer.If you are expecting funding from a bank or another source, ask if the lawyer can defer payment of their legal bill until after you have received funding. Keep in mind that certain legal documents are perfectly fine to be done by you, but others that are significant such as incorporation documents and contracts should be left to professionals to avoid larger expenses down the road including expensive litigation.
- Apply for bank loans early. It is a common mistake of business owners to wait until they are in financial trouble before they apply for credit or loans. This is when your business is least likely to receive the help that it needs. If you have credit lines in place, those can be very useful when they are needed such as for expansion or for emergency cash.
- Handle your own marketing. Use a proven marketing strategy and follow it carefully. Focus your efforts and be intentional and driven. If one thing is not working, regroup and try another. It is important to get your business out in front of your customer’s eyes.
- Keep travel costs low. It can be tempting to spend loads of money on luxury travel and accommodation, but all you really need is to get to your destination and have a clean place to sleep. You don’t want your employees to see you spending piles of money on something that is of little value to the company. Always plan business trips as though you were paying for them out of your own pocket.
Starting and maintaining your own small business can be very exciting. You want to keep a careful watch of your business finances to ensure that you know where every penny is coming in and going out. If you do not keep track of these simple things you can easily lose track and ultimately lose control of your business finances. If you follow the tips described here, you are well on your way to keeping your business on track to become profitable.