Did you know that only 25% of businesses make it to their 15th-year mark? This number has remained relatively consistent over the years.
One of the leading causes of the low success rate is poor small business finance management. Many small business owners are unable to keep cash flowing into their businesses. Ultimately, this leads to business closure.
The good news is that there are ways you can be part of the 25%. It doesn’t take much to succeed if you know proper finance management.
Read on to learn tips for managing small business finances.
- Pay Yourself
Many small business owners pay everybody but themselves. They think that doing so will save their businesses money. But this notion is faulty.
Remember that you’re just as important as your employees. This doesn’t mean that you should use up all your profits. Find a way to pay yourself and maintain some of the profits in the business.
There are many benefits of paying yourself. You can act as an emergency source of income when your business needs it. This way, you don’t need to look for external financing.
If you need external help, paying yourself will also act in your favor. Lenders regard business owners who pay themselves as dedicated. So, they’re more willing to extend loans.
- Separate Business and Personal Accounts
Separating the two will protect your business and way of living. Combining the two often leads to losing out on one when trouble hits the other.
Never pay business-related expenses with your personal accounts. You also need to avoid sending money from your business bank account to your personal account.
Follow the same procedures you use to pay your employees if you’re paying yourself. Doing so will help you remain accountable for every coin.
It’s also important to get a business credit card. Opening up a credit line even before you need it will make things easier for you if trouble arises.
Note that taking out a credit card doesn’t mean you have to use it. You can keep your card and only use it when your income falls short of your expenses.
- Be Frugal
Frugality is everything in managing small business finances. When you’re frugal, you’ll only spend money on essential things.
But note that frugality is different from cutting corners. Never skimp on the quality of your products or services to keep expenses low. Instead, you can take advantage of early payment offers given by vendors.
Ensure you assess the importance of big purchases before you make them. If possible, put off big financial decisions for a few days. Only make big purchases if you find yourself still inclined to make them after a few days.
Bad financial decisions will land your business in trouble. On the other hand, frugality will keep you afloat for a long time.
- Invest in Quality Accounting Software
Managing small business finances today is easier than ever. You don’t need a finance or accounting background to keep your finances in check. All you need is reliable accounting software.
Roughly 64% of small business owners choose automation with good reason. Accounting software makes it easier for them to track their income and expenditure.
It’s also more convenient because some systems allow credit card processing integration. So, business owners don’t have to manually input data from their businesses.
There are many variations of accounting software. As such, you can rest assured that you’ll find something befitting of your business.
Consider aspects like ease of use and integration when choosing accounting software. If you are running an auto repair shop, click here for details on a reliable accounting program.
- Track Your Cashflows
Your cashflows are the backbone of your business. So, you’ll need to keep a close eye on your inflows and outflows. Most accounting systems make tracking cashflows easier.
This data will help you identify the most valuable assets to your business. It’ll also help you identify areas you can improve. Such areas may pose problems in the future.
For example, your cashflows will highlight your problematic clientele. Once you do, the next step is to get creative with your billing. Introduce incentives like 3/10 net 30 to improve your inflows.
This strategy encourages clients to pay by offering a 3% discount for payments made within ten days. Most customers will want to take advantage of that offer. So, it’s a win-win situation for your clients and business.
You can also hire a professional accountant to help you interpret findings. A professional can offer advice on the assets responsible for your greatest cashflows.
- Focus on Your ROI
Assessing your inflows and outflows is usually not enough. You also have to track your returns on investments to remain successful. Your ROI will show you how much each of your investments brings back to the business.
You’ll know which initiatives to focus on and which to drop with this information. Operating a business without considering ROI is like throwing a stone in the dark. You’ll never know whether you’re focusing on the right target.
Determining various assets’ returns on investments can be challenging. So, look for an experienced accountant to help you.
You can save money by outsourcing services rather than maintaining an in-house professional. After all, your accounting software will be doing the bulk of the work.
- Get Loans
It’s normal to be skeptical about taking loans. Many small business owners are afraid of loans because of their associated costs.
While it’s true that loans can be costly, they are a necessary part of a business. It’ll be difficult for you to operate solely on your business’ returns. It’s also near-impossible to expand a business without a small business loan.
Borrowing is beneficial. All you need to do is research and compare your options. Doing this will help you identify the most favorable lenders.
You’ll also need to create a realistic repayment plan. Remember that a loan only becomes a problem if you’re unable to repay.
Leverage These Small Business Finance Management Tips to Grow Your Enterprise
You’ll find small business finance management quite easy with the proper guidance. Technology has made it possible for people to run successful businesses.
Adhering to the guidelines in this article will make a significant difference. You can be part of the 25% of businesses that surpass the 15th mark.
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