8 Financial Tips Every Small Business Owner Should Know

If you’re a business owner, you know that running a business is not easy. There are hundreds of things to think about and do, especially for small business owners who don’t have large teams. Statistics show that up to 20% of new businesses shut down during the first two years of operation, 45% don’t make it beyond the first five years, and 65% don’t last beyond 10 years. Business failure occurs for several reasons, one of the most common being financial reasons. 

Sound financial decisions and management make the difference between a successful business and one doomed to fail. Here are some financial tips that can help stabilize and grow your business.

Keep Good Business Credit

Good credit can help your business access funds you will need sooner or later. Banks will likely give you loans that can help you expand your business, buy equipment or increase your cash flow. To build a good credit record, ensure you process your payments on time. Only take out loans you can repay and ensure that you utilize the money in a way that helps the business.

Establish Good Financial Habits

Small businesses are run mainly by a handful of people, and with so much to do, it can be hard to keep track of finances. This can expose your business to legal issues, theft, and careless spending, among many other problems. 

Some good habits that can help your finances include setting and sticking to a budget to minimize overspending and manage accrued expenses. A budget can also be a quick way to see if your business is making profits. Record keeping is also a good habit that can help you track your business expenses and give you a general picture of the workflow and income generated. 

Investing in software helps make this manageable. Even charities can benefit from it, especially with the best accounting software for nonprofits. Solid financial habits shouldn’t be too hard to form with the right software.

Risk Analysis and Management

One of the best ways to keep your business running is by regularly conducting risk analyses and mitigating them before they result in disaster. Risk analysis involves assessing essential things that could impact your bottom line and handling them before they affect your business. This includes financial risks that may affect your business, like volatile markets and inflation, recession, and even bankruptcy. You can also consider credit risk if your business is unable to meet its financial obligations. 

Risk analysis can help you prepare for and effectively handle the predicted problems. This can help prevent your business from going under when an emergency happens. A risk management plan can also make it easy for you to access loans from financial institutions, as you’ll have a solid repayment plan. Additionally, risk management will result in fewer accidents and incidents at work, translating to fewer claims and increased productivity. 

Hire the Best

While hiring the best sounds counterproductive, it is a good way for small companies to meet their bottom line and grow. Working with highly qualified and efficient people increases output, which can be profitable for businesses. They will get the job right the first time and help build your brand as a respected industry authority figure. Professionals will also help mitigate risks by ensuring your business operates at the highest level keeping you safe from lawsuits, cyber-attacks, and other costly threats. 

Review Your Vendors

While using the same vendor for a long time will offer you several benefits, including discounts, it is essential to regularly review your vendor and compare their services and prices to other vendors. This review might show you other vendors who will offer the same or better services at lower prices, helping you reduce your operational costs. 

Manage Cash Flow 

Cashflow is everything in small businesses. It defines whether your business can keep running or if it shuts down. Understanding your position and ensuring you have the adequate cash flow for your business to run smoothly without interruptions is essential. 

Some good techniques to manage cash flow include cutting or delaying expenses through depleting existing inventory before restocking and hiring a part-time workforce with few benefits instead of a full-time team. You can also increase margins by either reducing input costs or raising prices. You can also consider making extra money by selling off or leasing company items that aren’t utilized, like old equipment or real estate. 

Separate Business and Personal Accounts

Separating your accounts will make it easy for you to account for and manage cash flow. It will also ease your accounting as business expenses will be charged to the business account and personal in your accounts. 

You can also benefit from tax deductions and rebates with a separate business account. Different accounts can also help you protect your property from liability which can help prevent you from going under. A business account will also give your company a good image and credibility and provide you with access to facilities limited to businesses.

 Have a Cash Reserve

Cash reserves can save you on rainy days and give you instant access to money when you need it. It can also act as security that can help your business sail through difficult times such as recessions, low sales periods, and unexpected costs or losses. You can store reserves in the form of short-term but high-liquidity assets like treasury bills and money market funds.

While running a business is daunting, proper financial planning can go a long way in helping your business survive and thrive. Developing and complying with good financial habits like record keeping and budgeting is crucial. You should also have emergency reserves to help you get through rough times. As a business owner, you should separate your business account from your personal account to protect your assets and build your business image and credibility. Remember to manage your cash flow and check out different vendors to improve efficiency.