Having a great business idea and managing the financial side of a business are two entirely different skill sets. With the right processes and mindset, you can create a viable financial management plan for your small business.
Here are some practical strategies for managing your small business finances for long-term success.
Monitor Your Business Credit Score
One of the foundational aspects of managing your small business finances is to monitor your business credit score. Having a strong credit score will help you secure financing, improve loan terms, and help when negotiating with vendors. Many small business owners overlook their credit score until they need it, causing last-minute financial challenges and stressors.
Monitoring your credit score will help you dispute negative items and ensure your business credit remains viable. Take the time to learn how to remove late payments from your credit report, spot fraudulent items, and make strategic improvements over time.
Consult a Financial Advisor
Many small business owners struggle to plan for retirement. Consulting a financial advisor can help small business owners plan for the future and implement smart strategies for the present. A skilled financial advisor can also help the owner make data-driven decisions that lead to profitability and longevity.
Nourishing a relationship with a financial advisor is also beneficial for entrepreneurs looking to sell their business at some point. They can help showcase the business in its best light to make it more appealing to potential buyers.
Streamline Invoicing Protocols
Invoicing tends to be a sticking point for many small business owners. The quicker an invoice is sent out, the quicker it will get paid. Having a standard invoicing process will also make accounts receivable tasks easier to manage.
Start by implementing clear payment terms, offering incentives for early or cash payments. Make invoices clear and user-friendly, with automated reminders to keep customers on track. It can also be beneficial for small businesses with limited resources to do batch invoicing if investing in an automated tool isn’t feasible.
Plan for Tax Season All Year
The better you prepare your taxes during the rest of the year, the less stressful your tax season will be. Setting aside time each month to ensure everything is ready for tax season will prevent costly mistakes and stress when it’s time to submit.
Depending on the taxation rules surrounding your business, you may have to submit monthly, quarterly, or annual installment payments. Regardless of the schedule, it’s vital to set aside money for taxes each month. Put these funds in a separate account to ensure there are no shortages come submission time.
Reinvest in the Business
As the saying goes, you have to spend money to make money. A more modern take would be to spend money to help your business grow and flourish.
When setting up a business budget, dedicate a certain percentage to go back into the organization. This money could go into a savings fund for the future or get used to invest in new tools and scaling efforts. By taking a bootstrapper’s approach to business growth, you mitigate the need for investors and high-interest loans.
Track Expenses and Cash Flow
Finally, small business owners should babysit their expenses and cash flow. While it’s important to understand the bigger financial picture within the business, these two metrics provide the best performance insights.
Your expenses highlight where money is going, helping you identify where you can make cuts during lean periods. Cash flow indicates how efficiently your company is generating revenue and whether there are any invoicing gaps to be addressed.
With these six strategies, you can improve the financial management of your small business for long-term success.