Running a business is no walk in the park. According to the U.S. Bureau of Labor Statistics, “approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.”
It’s no secret that money is at the core of every business initiative. Companies should, therefore, know how to optimally manage their finances.
Think about it – even if you have a great product or service, you wouldn’t be able to run your business successfully without knowing how to manage your money. This, however, needs an in-depth knowledge of and experience in financial management.
If you’re a novice in business finance, don’t fret. This post will present a few tips to help you make smart financial decisions and give your new business a bright future.
- Organize Your Cashflow
It is best to have your cashflow organized and accounted for from day one of starting your business. Even if the numbers are small, which they probably will be initially, you should make it a regular practice to track your income and expenses from the get-go.
While it is totally understandable that you have a million things to focus on, know that staying on top of your accounting is non-negotiable. Doing so will not only give you a clear picture of where your business stands financially, you’ll also have an easier time during the tax season.
Also, as your business expands, your finances will grow to a point where using simple spreadsheets won’t suffice. You’ll need additional help, especially with tracking your cashflow, automating invoices, and so on.
You may want to consider investing in accounting software to stay on top of your finances, while simplifying regulatory processes related to filing taxes.
- Consider Getting a Line of Credit
The fact that you need not have collateral or a very high credit score to avail a line of credit makes it a great alternative to traditional loan. Getting a line of credit will help you manage various short-term funding requirements for maintaining inventory, paying salaries, fulfilling new orders, and so on.
The biggest advantage that comes with it is the flexibility to obtain cash at regular intervals, repay it, and borrow again. This means funds will be readily available when you need them, with flexible repayment options.
Obtaining a line of credit will also make it easier for you to maintain a healthy credit score. By repaying the money on time and keeping a low account balance, you’ll be able to boost your business’s creditworthiness and gain the trust of lenders.
Overall, a line of credit will allow your business to smoothly adapt to the changing market needs. It’ll enable your business to thrive in the competitive environment, while helping you grab the available opportunities with both hands.
- Keep Business and Personal Funds Separate
Combining your business and personal funds can be disastrous. You may be left with unorganized records, leading to overspending and wasted opportunities.
It’ll also complicate the process of tracking your deposited and withdrawn money. Your cashflow will start to make less sense over time. Also, you may succumb to the temptation of using your business funds for personal expenses or vice versa.
Having a separate business bank account is crucial to managing your finances in a structured manner. This will allow you to maintain your business finances more systematically and use your bank statements for easily tracking your profits and expenses, as well as reconciling your books.
- Make Use of Financial Reports
Do equip yourself with the skills and tools needed to track every single expense incurred by your business. Use the following types of reports to gauge the financial health of your business and create optimal buying, selling, and collection strategies.
- Profit and loss report: This will reflect your business income, expenses, profits, and losses.
- Balance sheet report: This will keep you on top of your assets, liabilities, and net equities.
- Accounts payable and receivables report: This will help you know how much your business owes others and vice versa.
A great alternative is to avail of time-tested financial services from reputed wealth management professionals near you. Working with a wealth advisor who has knowledge of your state’s financial regulations is most preferable. So, for example, if your business is based in Gainesville, FL, get financial advising in Gainesville.
Knowledgeable and experienced wealth managers know exactly how to manage your finances according to the applicable regulatory schemes. Their services and guidance will also be beneficial at the time of investment and tax planning.
- Be Prepared for Unforeseen Emergencies
Emergencies have a way of springing up when they’re least expected. Make sure you have enough funds saved up on the side to meet emergency expenses.
It’s always a good idea of maintain a cash reserve that you can dip into when the need arises. You may start saving money by opening a business savings account. Thereafter, make it a point to regularly deposit a certain amount into this cash reserve.Infographic created by Clover Network – a pos systems company
Sound financial management is crucial to the success of any business, regardless of its size. If you don’t plan well from the start, you’ll most likely incur losses and eventually fail. Prioritizing finances and learning to crunch the numbers can go a long way in making your business profitable. Hopefully, these tips will help you manage your finances wisely, and build a business that benefits you, your employees as well as customers. Good luck!