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10 financial tips for small business success
Finance is the lifeblood of any business. Small businesses usually start with a small amount of capital, so business owners need to have the right skills to get off the ground.
According to LendingTree, approximately 20% of new businesses fail within the first year. And what is the main reason for these failures? Cash flow problems. The cost of doing business can be a hurdle for small business owners, but is it good news? Following these financial practices can turn your company into nothing more than a statistic.
1. Record everything
Choose the right accounting software to keep records of all your financial transactions, inventory, payroll, accounts payable/receivable, etc. This is not just a financial tip for small businesses, it is necessary for the survival of every individual and organization. Records make it easier to file your taxes and give you a realistic picture of your financial situation.
2. Differentiate between business and personal
This is one of the most common financial mistakes small business owners make, as most small businesses are self-funded. If both you and your business are struggling financially, you may want to commingle money between the two. Resist that temptation because it can quickly sink your business. Money for personal items and experience should come from your salary, not your business funds.
3. Stay on budget
Without a proper budget, you won’t be able to plan for your future expenses. A budget puts you in control of your business and gives you the opportunity to assess how your business is doing compared to previous periods. As mentioned above, with accounting software available, there is no reason not to maintain an accurate budget for your business.
4. Stay in-house as much as possible
Many roles can be outsourced to agencies or freelancers, but this can be prohibitively expensive. Keeping work in-house doesn’t necessarily reduce costs, but it does make it easier to track employee productivity and work quality and maintain trade secrets. This level of control allows you to get the most bang for your buck.
5. Track marketing and advertising ROI
How much you spend on advertising depends on the type of business you run. The U.S. Small Business Administration (SBA) lists various budgets for businesses ranging from 1 to 12 percent. However, the most important thing to keep in mind is that your advertising budget should not be spent aimlessly. Take the time to accurately measure and prove his ROI on every marketing spend allocated.
6. Invest excess liquidity
Having positive cash flow helps in many ways, including the ability to reinvest in your company. If your business is profitable, consider investing in research and development, physical assets, IT, employee benefits, and PR. Having extra cash in the bank can also help you stay ahead, but you can also invest some of that money in stocks, bonds, and vehicles in other companies. Talk to a professional wealth manager to determine the best way to invest your money while you still have it.
7. Shop with credit when you have the money
According to Zippia, banks’ small business loan approval rates range from 13.8% to 19%. Credit issues account for 20% of rejections, indicating that many small businesses are likely to wait to apply until they run into trouble. It sounds counterintuitive, but the best time to apply for a business loan is when your business is doing well and you’re likely to be approved. You can continue making payments while saving money for emergencies.
8. Monitoring operating expenses
Budgeting is not a one-time transaction. You should constantly monitor your operating expenses so you can discover ways to potentially save money. If your supplier or utility increases prices, start shopping around for a better deal. Negotiate your bills regularly and be sure to understand your expenses, especially any fluctuations in recurring expenses. Being proactive about this will save you money in the long run.
9. Take advantage of free software
Software is expensive, especially when you consider implementation, training, maintenance, and support costs. Thankfully, there are plenty of free options available for everything from spreadsheets and word processing to communications, marketing, employee time tracking, and more. Don’t spend money on software unless you have a free alternative.
10. Hire an expert
With all of these financial tips, remember that these practices require commitment on your part and, in some cases, the help of a financial professional.
It’s normal for entrepreneurs to want to do everything, but that level of multitasking creates problems. Research shows that multitasking causes negative health effects such as stress, distraction, depression, and memory loss. It can also reduce efficiency and lead to mistakes at work.
The last thing you want to overlook is your company’s finances. So hire an accountant or bookkeeper as a dedicated team member. The result will be a solid foundation for your business to grow and prosper for years to come.
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