Managing finances can be a challenge for any small business owner. Often, the reason your small business is successful is because of the skills you bring to making your product or providing your service. If you don’t have a lot of experience with managing business finances, it can feel like a chore and you could be slipping into bad financial habits that could one day harm your business.
The most important step for any business owner is to educate themselves. By understanding basic skills needed to run a small business – like doing simple accounting tasks, applying for a loan or drafting financial statements – business owners can create a stable financial future. In addition to education, staying organized is a major component of sound money management.
Here are a few things you should do as a small business owner to stay on top of your finances.
1. Pay yourself.
If you’re running a small business, it can be easy to try and put everything into day-to-day operations. After all, that extra capital can often go a long way in helping your business grow. You want to ensure that your business and personal finances are in good shape. But remember, you’re part of the business and you need to compensate yourself as much as you pay others.
2. Invest in Growth.
In addition to paying yourself, it’s important to set aside money and look into growth opportunities. This can allow your business to thrive and move in a healthy financial direction. Business owners should always keep an eye on the future.
If a small business wants to continue to grow, it should demonstrate that they are willing to invest in the future. Customers will appreciate the increased level of service. Employees will appreciate that you are investing in the company and in their career. And ultimately you will create more value for your business than if you were just spending all your profits on personal matters.
3. Have good billing strategy.
Every business owner has a client that is consistently late on its invoices and payments. Managing small business finances also means managing cash flow to ensure your business is operating at a healthy level on a day-to-day basis. If you’re struggling to collect from certain customers or clients, it may be time to get creative with how you bill them.
Too much cash tied up in unpaid invoices can lead to cash flow problems, a leading cause of business failure. Instead of badgering a customer who is late on payments with repeated invoicing and phone calls, try a different approach. Change the payment terms to include an incentive. An example would be giving a 2% discount off the total bill if the customer pays the invoice within 2 weeks.
4. Monitor your books.
This is an obvious practice, but a very important one. Do your best to set aside time each day or month to review and monitor your books, even if you’re working with a bookkeeper. It will allow you to become more familiar with the finances of your business, but also provide you with a window into potential financial crime.
5. Focus on expenditures, but also ROI.
Measuring expenditures and return on investment can give you a clear picture of what investments make sense and which may not be worth continuing. Small business owners should be wary of where they spend their money.
Focus on the ROI that comes with each of your expenditures. Know where you are spending your hard-earned dollars and how that investment is paying off. If it isn’t paying off, cut back and spend a bit more on the initiatives that do work for you and your business.