Running a small business comes with a lot of responsibilities, you need to handle a never-ending stream of tasking matters and administrative works, and that includes managing finance. As business owners try to battle with their daily financial issues, they sometimes make financial mistakes that lead to wasted resources, financial setbacks and business failure. It’s a challenging process and if not managed carefully, it could lead to serious financial problems.
Financial management involves much more than bookkeeping and balancing the business checking account. As a business owner, you need to take your time to educate yourself regarding your business finances. By understanding and practising basic skills required to manage a small business like performing basic accounting tasks, managing invoices, or drafting financial statements – you can maximize your chances for success and create a stable financial future. Here are 5 helpful financial tips that would help you in managing your business finances.
BUSINESS AND PERSONAL FINANCES SHOULDN’T BE MIXED
Mixing personal and business finances is a common mistake entrepreneurs tend to make without knowing the problems it could cost their businesses. As you get caught up in your business affairs, you might begin to take both as the same entity. But as you mix up your personal and business finance records, you will ultimately have to deal with disorganised records in the situation whereby filing taxes and calculating your company’s valuation comes up.
It will also create a heavy load for your personal accounts when your business is losing money. Setting a boundary between your two finances will provide more room for your small business accounting to be organised and straightforward. Even though you’re just starting to run your business, you should aim to separate your business and personal finances. Create an account that is strictly for business purposes, adding to this, get a business credit card as well. Helpful practices like these will help remove personal liability in case something happens to your business.
GET ADEQUATE INSURANCE
In order to manage your small business finance and grow your portfolio into a profitable one, you need to invest your time into researching about what is better for your business including knowing the right insurance to invest in. unfortunately, up to 90% of start-ups fail, so it’s important to guard your personal and business assets from serious damages by getting insured.
You will need a variety of insurance types. For example, you can limit your business liability by getting a liability insurance. Additional personal life and disability insurance ensues you are provided with income in case you are ill or disabled.
Or you can invest in health insurance, even as a sole proprietor or solo entrepreneur, getting a health insurance is a vital step you should take in securing both your health and financial security. Getting access to full coverage for any form of medical treatment can be costly if you decide to pay for it out of your own pocket.
KEEP TRACK OF YOUR CASH FLOW
It doesn’t matter how early you are in running your business or how small your company is, when it comes to managing small business finance you need to have your payment terms outlined concisely and efficiently. Though it can be tasking for you as a business owner, you need to record both the financial and legal aspects of your monetary transactions and regularly monitor the movements of your capital. Even if you have a bookkeeper working for you, make it a priority to review and monitor your books. This will enable you to understand the finances of your business better. Finally, keeping track of your cash flow will help you in figuring out the areas that need improvements and in which sector you need to control your funds.
DIVERSIFY YOUR INVESTMENTS
Diversifying your investments is another important business finance tip you should practice. It is one of the most important principles of investing. It should also be of important consideration because business owners tend to invest all of their assets back into the business.
While investing in your business will boost your business growth, you shouldn’t throw all of your assets towards one bet. This increases the level of risk associated with owning a business, considering that about 50% of small businesses survive the first 5 years. Another important tip to consider is to avoid a situation when there’s surplus cash in your business.
If you find yourself in that situation, pull the cash out and invest in another type of business. By allocating funds into other types of businesses or alternative investments, you’ll not just be reducing chances of financial debt but also increase your wealth.
HIRE A TEAM OF EXPERTS
Trying to manage your finances alone could leave you overwhelmed, especially if you are not knowledgeable enough in the field. Which is why you’ll need the help of competent experts in the field of finance. For example, you’ll need an accounting professional, lawyer and financial advisor.
A knowledgeable financial advisor will help you decide on how best to handle your finances and avoid costly mistakes. Another advantage of hiring a financial advisor is that it lets you get back to doing what you do best without being weighed down by time-consuming financial matters you would rather avoid.
If you want to hire a firm for accounting services, avoid being involved with large firms that will not prioritize your business over bigger clients. Choose a firm that suits your business and is always accessible when needed.
Running a business is not an easy one, it comes with many operational and financial challenges. One of the best ways to overcome these challenges is to plan ahead of time. As you run your business, your number one goal is to always make your business profitable.
Return on investment (ROI) is not generated immediately, and you cannot risk messing up your business finance at the initial period. The more you keep track of your cash flow and business finances, the better prepared you’ll be to make smart money management decisions.