Many entrepreneurs learn that starting a business is hard, but keeping it alive is much harder. Poor financial management leads to the downfall of over 82% of businesses. Your finances don’t only tie to the profit your business earns.
It can also help you make informed decisions to know how to maximize growth. Managing business finances is a crucial skill that can affect your success.
Are you a new business owner? Don’t worry; we’re here to give you a headstart. This article contains some crucial tips when managing business finances.
Read on to discover more!
Budget is Everything
Budget is the first thing you must always look at when reviewing your business finances. Your budget serves as the foundation for your business’s financial stability. Having a clear budget and sticking to it can protect you from falling into debt.
Start by defining your company’s goals. This will allow you to plan a budget that can work toward achieving those goals. It can help you narrow down what your business needs and what may not be as important to your operations.
Fixed, Variable, and One-Time Expenses
Once you have that, you can categorize costs into three categories. The first is “fixed costs.” Fixed costs may include rent, debt payments, and utilities.
Unlike fixed costs, “variable costs” may vary over time for different reasons.
This includes things like labor and material costs and sales commissions. Utility bills may also go up if there’s been an increase in use.
Finally, you can also factor in “one-time expenses.” This often includes new equipment and facilities or hiring an expert.
Once you have a list of projected expenses, you can fit them into your budget and see if you have a deficit or surplus.
Keep Personal and Business Finances Separate
Professionals know never to mix their personal life with business; the same goes for finances.
Combining both may seem like a good idea at first, but you’ll find it can make your life a lot harder. Reviewing and keeping track of expenses becomes more confusing as you can’t draw the line between personal and business costs.
A separate business account will give you a clearer understanding of cash flow. It also enables you to avoid overspending on either aspect of your life. In addition, you won’t have to worry about taxes or missing out on business deductions.
As a side note, don’t forget to give yourself an income. Many entrepreneurs pour all their income into their businesses. It’s crucial to remember that keeping your personal finances in good shape ensures you have a safety net if it doesn’t work out.
Consider Taking Out a Business Loan
Loans may seem like a death trap, especially for small business owners. Whether expanding your operations or starting a new project, loans can be a huge help. You won’t have to tap into your emergency fund to invest in your business’s lifespan.
You can instead use the money to boost cash flow. One surprising thing about business loans is that they have lower interest rates than personal loans. If you’re eligible, you won’t have to pledge collateral either.
Providers also have different programs for businesses of all kinds and sizes. If there’s something you need to get your business off the ground, a loan might be the answer.
Stay on Top of Your Books
Even if you hire an accountant or bookkeeper, it helps to take the time to review finances yourself. This can increase your fluency with finances and help you detect irregularities. Hiring bookkeepers and accountants can save you time and energy.
However, a close familiarity with your finances will help you make informed decisions when the time comes for them.
In addition, failing to review invoices yourself leaves you vulnerable to crime. Financial statement fraud comprises 9% of theft cases, but it’s also the most damaging.
Keep in mind that cash is your company’s lifeline. If a financial emergency occurs, you want to know why and how it happened.
Don’t Be Afraid to Seek Help
Entrepreneurs will always have different strengths and weaknesses. A business owner might have good financial literacy but not have enough experience in advertising or vice versa. If you want to reap success, don’t hesitate to find help when you need it.
The best entrepreneurs know that great work doesn’t come from one person alone. You can get help from a consultant or work on building a solid team. Take your time and think about the longevity of your business.
Reinvest in Your Business
Entrepreneurs don’t become successful by staying stagnant for too long. Once you achieve a healthy and consistent profit, it’s time to think about reinvesting in your business. Reinvesting helps you build momentum for growth.
Of course, you don’t have to give up celebrations for team victories. Instead, you can set aside a small amount of capital to make room for new hires, better equipment, or more marketing.
Investing in your company’s future success can also invite new investors. Learn about capital contributions here to find out what that means for your business.
Don’t Forget About Taxes
Tax rates and payment methods differ depending on a business’s structure. Ensure you classify your business correctly to avoid overpaying in taxes. Consult with an accountant or attorney about which structure your business fits into.
If you’re self-employed, remember that taxes won’t be automatically deducted from your income. Set aside 20-30% of your monthly income or work with an accountant to know what a good starting point looks like. Failing to factor your taxes into your financial plan can result in hefty penalties.
Everything You Need to Know About Business Finances
As a new company owner, navigating business finances can seem daunting. Use this article as your survival guide to keep track of your expenses and leverage that information for growth.
If you want to expand your business, don’t stop here. We have more informative guides to help you reach long-term success. Check out our other blog posts to discover more.
