Small business owners have to be creative and savvy regarding their finances. It can be challenging to secure loans, manage expenses, and make a profit in the early years of a business. In fact, according to the U.S. Bank, poor cash flow management or a lack of understanding of cash flow is responsible for the failure of a small business 82% of the time.
But with careful planning and guidance, small business owners can make their ventures thrive. So, how can you better manage your small business finances? Here are a few tips:
Make a budget and stick to it
The first step to financial management is creating a budget for your business. A budget will help you track your income and expenses and give you a clear idea of where your money is going. Often, small business owners underestimate their costs, leading to financial trouble.
There are several ways to create a budget, but the most important thing is to be realistic about your cash flow. A too-tight budget can be just as harmful as no budget at all. But if you’re unsure where to draw the line, many helpful budgeting templates are available online. You can also seek advice from a financial advisor or accountant.
Once you have a budget in place, it’s best to stick to it as closely as possible. Review your budget regularly and adjust as needed, but try to avoid making significant changes on a whim. In doing so, you’ll stay on top of your finances and make better long-term decisions for your business.
Good record keeping
Although it may seem tedious, keeping good records is essential for any business. Proper documentation will help you track expenses, prepare taxes, and make sound financial decisions.
There are several ways to keep records, but the most important thing is consistency. Use the same system for all of your transactions and update it regularly. You can use accounting software, a spreadsheet, or even a simple notebook. As simple as it sounds, this step will save you a lot of headaches down the road.
Moreover, good record keeping will help you take advantage of tax deductions. Make sure to save all relevant receipts and documents to maximize your return. This way, you can reinvest that money back into your business. Thus, giving you a boost in your capital.
Know your loans and lines of credit
Small business loans can be a great way to finance your business, but they’re not always easy to obtain. According to the Small Business Administration, 27% of small businesses surveyed said they did not get all the funding they needed. So, how can you increase your chances of getting a loan? Here are a few tips:
Have a strong business plan
Lenders will want to see that you have a well-thought-out plan for your business. Your plan should include financial projections and a detailed explanation of how you’ll use the loan. Working with a small business coach or accountant can help you develop a strong business plan.
Build your credit score
Your credit score is an important factor lenders consider when approving a loan. It dictates your capacity to repay the loan and shows lenders how much of a risk you are. You can build your credit score by paying your bills on time and keeping your debt levels low. You can also consider getting a business credit card to help make your credit history.
Not all lenders are created equal. Each one has different requirements and offers varying terms. So, shopping around is essential to finding the best loan for your business. Local banks can provide a quick and easy way to get a loan. They offer lower interest rates and faster approvals. Nonetheless, comparing multiple offers will help you get the best deal.
Create a cash reserve
Of course, the best way to avoid financial trouble is to have a cash reserve. This way, you’ll have money for unexpected expenses or slow periods. Ideally, cash reserves should cover 3-6 months of expenses. But, even a smaller buffer can give you some peace of mind.
Building a cash reserve can be challenging for small businesses. After all, you have bills to pay and mouths to feed. But with some discipline, it is possible to squirrel some money each month. Automating your savings can also make the process easier. This way, you’ll never see the money and won’t be tempted to spend it.
There are many things to consider when it comes to small business finance. But, by following the above tips, you can better manage your finances and ensure the success of your business. Although it may seem daunting, taking the time to understand your finances is crucial to the long-term success of your business. With some effort, you can take control and ensure a bright future for your company.