Small businesses are essential to any economy’s evolution as they foster local growth, keep the money close to home, support neighborhoods, and help build communities. According to the World Bank, Small and Medium enterprises represent up to 90% of businesses and more than 50% of employment worldwide!
This reiterates the role and importance of small businesses better. It is vital to have a firm grasp over finances and taxes when it comes to any business. However, with small businesses, one can run into several financial challenges that can act as roadblocks to structured, consistent growth. Here are a few ways through which you can manage your small business finances better!
- Separate your business account
Mixing business with your personal life is never a good idea, especially when it comes to money. Merging the two can result in tax-headaches and untraceable losses. Set up a separate business account to keep your revenue and expenditure separate from your personal spending. Doing so will make your profits more scalable and help you keep a proper track of your expenses.
- Pay yourself
You may be wondering why and how this is important in helping you manage your small business finances better. Small business owners must compensate themselves without overlooking their role in the company for the following reasons:
- It’s human psychology – why shouldn’t you pay yourself for all your hard work?
- It helps get a more accurate look at your business’s profits when you’re accounting for all expenses such as your remuneration
- On that note, it’s also beneficial for tax purposes.
- Set up healthy financial habits
Healthy financial habits are inherent and personal when it comes to managing small business finances. Whether it’s setting up internal financial protocols such as fixing days in a month to review and update financial information, or simply taking a regular update about the expenditure and revenue, these habits go a long way in protecting your small business’ financial health.
Most importantly, keeping up with your finances can help you dodge fraud and risk.
- Effectively manage your books
Monitoring your books is a critical practice, and for managing small businesses finances better, you need to set aside a fixed time every month or even every week to review ledgers. Not only will it help you in gaining familiarity with the financial side of your business, but it’ll also give you a keen eye for irregularities. You can hire a bookkeeper or invest in digital accounting software, and even personally verify the reports from both to rule out any foul play or malpractice.
- Meet deadlines
Ensure you’re up to date with key information involving re-payments and payments, such as accounts payable, credit card payments, and business loan payments. Staying on top of deadlines is crucial when managing small business finances as it helps you avoid late fees or added interest.
It also prevents the lowering of your business credit and your vendor/lender relationships from turning sour. Set timely reminders that will help you track the payments due and make a consistent payment schedule to stay ahead of deadlines, always.
- Being frugal is key
Frugal here doesn’t imply being a miser by cutting down the employee salaries or compromising on the quality of your product or service. It simply indicates that you must not get tempted by the benefits of business ownership even if you can afford it. Save as much as you can and monitor your finances and spending closely so that you have more flexibility in times of unprecedented difficult months.
- Plan ahead
When it comes to effectively managing your small business finances in a superior and more scalable way, you must always plan ahead. According to Tina Gosnold, founder of Set Free Bookkeeping, if you’re not looking 10 years forward, you’re behind your competition. Forecast your financial state and set up achievable goals that you want your small business to achieve in the upcoming years. This will give you a hint about your future financial requirements and needs.
Managing small business finances effectively is key if you plan to expand and grow your business. With practice, this process becomes easier and more manageable. As you develop healthy financial habits, you will see prominent gains in the cash flow, and hopefully, be able to expand and grow your business in a structured and scalable manner!