Owning a small business is a dream for many people. Unfortunately, most are unable to get their dream off the ground because they don’t understand the steps needed to ensure that their business is financially healthy. The only way to keep a business stable and ensure that it does not fail is to manage its finances properly. Managing a business’s finances means that you pay yourself, your bookkeeping is in order, and keep good credit.
It All Starts with Education
The most important thing that you can do is educate yourself about finances. The more you know about the basic skills needed to run a small business, the better your business will run.
You may see the need to hire accountants, bookkeepers, and financial planners. Still, you need to understand the basics of accounting tasks, what is involved in taking out a loan, and how to draft a financial statement.
If you are going to take credit cards, you need to understand how credit card processing services work. What are the different types of payments they accept, what software or equipment is needed, and what type of fees will you need to pay to avail yourself of a credit card processing service?
For business owners who lack financial education, the scariest thing in the world is going to their accountant’s office at the end of the year and having random receipts, credit card statements, bank statements, and no clear understanding of their business’s financial standing. Managing business finances is at the heart of creating a financially stable business.
Put Money in Your Own Pocket
You hear stories about startups where the owner sees to it that everyone else gets paid but never pays themselves. If a business owner doesn’t pay themselves, they underestimate the value they add to their business. They need to value themselves accurately and then compensate themselves accordingly. It is counterproductive to have the business finances in good shape when one’s personal finances are not.
While new small business owners don’t want to think about this, the truth is that the majority of small businesses fail within the first five years. If you devote all of your money to getting the business up and running and paying everyone else, it is possible that the business could fail and you would have never paid yourself.
Invest Money to Grow the Business
You should put money aside to invest in growth opportunities. This helps your business thrive and move in a financially healthy direction. Business owners should be focused on the present but also have their eyes on the future. Small businesses that want to become medium-sized businesses eventually and maybe even reach the enterprise level need to show employees, vendors, and customers that they are willing to invest in the future.
Good Business Credit Is a Must
Just like personal credit is key to financial success, good business credit is essential if your organization is going to grow. In the future, you may want to purchase real estate, buy new insurance policies, or take out loans. If you have bad business credit, getting approved for loans or other acquisitions will be a lot harder. A simple step you can take is to keep your business credit cards up to date. Don’t let them run a balance for more than a few weeks. If you are going to get a loan, make sure that you only take out what you need and that you will be able to quickly and easily repay the loan.
Get a Good Return on Investment
You want to monitor your expenditures and also make sure that you are getting a return on your investment. Knowing your ROI on different investments helps you to see which investments are worth continuing and which investments you should stop. If you don’t monitor your ROI and your expenditures, you may unknowingly be spending money on “investments,” such as certain marketing tactics. If it doesn’t work, get rid of it.
Controlling business finances is more than just knowing how much you are earning. It is about creating strategies for spending money and knowing the best places to get money from. If you keep your finances in order, you improve the chances of your small business thriving.