Owning a small business can be very rewarding, but it also comes with daily challenges. One of the most challenging aspects small businesses face is managing finances. Regular people struggle personally in this aspect of life; throwing a company into the mix makes it that much harder. Unless you have a financial advisor on your team, it’s hard to figure out how to utilize your small business revenue best.
Some common-sense financial strategies can translate from our personal finances to business finances when it comes to small business owners. There are also some ways to improve your small business’s financial health that aren’t as obvious. We’ll go over all of those here.
Financial advice for small businesses
Aways be saving (ABS)
As you might coach your employees to always be closing (ABC) with their sales prospects, you should remember to ABS (Always Be Saving). Throughout the life of any small business, there will be tough times when you simply can’t save. However, if you had saved correctly prior, then those times when you’re unable to won’t feel so grim. Just like with personal finances, it’s a good idea to dedicate a certain percentage of our weekly or monthly income to your small business nest egg.
But saving isn’t just for the hard times. It’s also how you gain money to reinvest into your business and grow. For this reason, it’s a good idea to open multiple savings accounts with your financial institution. One account can be your rainy-day fund; one can be dedicated to building improvements, the other can be for opening another store, etc. By doing this, you can better visualize your progress toward your goals, and when the rainy day hits, you can deplete that savings before you touch the other accounts.
Know your worth
They say do something you love, and you’ll never work a day in your life. It’s a good outlook to have, but the truth is, we all have to pay our bills. Small business owners often forgo paying themselves and reinvest the income they would take home back into the business. Business owners do this for a couple of reasons. First, it allows the company to grow faster. Secondly, it’s a way around paying taxes since the owner doesn’t claim any income.
Although it’s good for your business not to pay yourself, it’s not the wisest idea for your personal life. If business owners never take a salary and the worst-case scenario happens and the business closes, the owner could be left with mountains of debt and no way out.
As a business owner, paying yourself can help prevent this from happening. Business owners have some options regarding how they pay themselves, which comes with different tax implications. Quickbooks has a great, in-depth guide about that very topic. The bottom line is that no one wants to work for free. Having a real income to be able to live is something that everyone needs.
Invest in a tax professional
Whether it’s making sure you’re deducting the correct taxes from your pay or making sure your small business is legally writing off its expenses, it’s wise to hire a tax professional. People have a hard enough time doing their personal taxes without getting audited by the IRS, let alone small businesses. With tax laws constantly changing and the amount of taxes companies are required to pay, it’s best to have a tax professional at your disposal unless you happen to have a tax background.
Have good credit health
Having excellent credit opens a lot of doors for people personally and professionally. If your business credit lines remain in good standing, you’ll be able to quickly qualify for loans for expanding your business or for emergencies. Like with personal finance, it’s advisable not to open more lines of credit than you can keep up with or spend beyond your means.
Budget everything
Speaking of spending beyond your means, if you don’t budget your expenses, you will quickly lose your good credit standing and possibly your business. Before you even start your small business, your business plan should outline a budget for every expenditure you can think of. It’s crucial that you stick to these budgets and adjust them accordingly as your business grows.
Don’t be afraid to ask for guidance
Some people, even small business owners, are simply not good with money. It’s imperative that if you happen to be one of these people, you come to terms with it and hire a financial manager to help you before opening your business. Although it’s an added expense, it’s better than shuttering the doors of your business after a year or two because you wanted to go it alone.
Even business owners who can manage their finances well stand to gain from hiring a financial manager. As with any aspect of business, when you surround yourself with a team of professionals, you’ll gain insights you may not have had on your own. Having a financial manager around is an excellent way to accelerate the growth of your business by optimizing how you spend your hard-earned money.
Final Thoughts
If finances aren’t your strong suit, don’t let that stop you from achieving your dream of opening a small business. Plus, that’s just one of many things you’ll have to deal with daily. Diligence is the key to success in every aspect of your small business. The main thing to remember is to do what you can, then get help where you need it.
