Every business, no matter how big or small, needs a strong financial plan to be successful. When you own a small business, though, sometimes those carefully laid plans can become unstable.
Clients you thought would pay on time don’t come through, or unexpected expenses show up. As the owner, it’s your responsibility to deal with all the complications and keep the business going.
But if you don’t have a background in finances, or it’s not your thing, dealing with the money side of your company can be challenging. Your financial habits could be hurting your business, not helping it.
While it can be difficult to create healthy money habits, it’s not impossible. Looking ahead is the first step in building your business’s solid economic foundation.
You can plan ahead and manage your finances, even the small business obstacles and variables you’ll run into at play. These five tips will help you properly manage your budget and increase your business’s chance of ongoing success!
1. Write Yourself a Paycheck
There’s a personal risk at stake when you own a business. If you let your home expenses slack to keep your business afloat, now you have two areas of financial stress.
Budget in a paycheck for yourself as you plan ahead. It doesn’t have to be a lot, but it should cover your essential home expenses.
With those taken care of, you can put your focus on your business’s finances.
2. Keep an Eye on Your Business Credit
You know the importance of your personal FICO credit score. Now that you’re a small business owner, you have a business credit score, too.
This number can be beneficial as you expand and aim for new goals. Preparing for your future means keeping good business credit to help you if you need loans, leases, or insurance policies.
Some lenders will look at your personal credit, but if you can keep your business expenses separate from your home, that’s the safest way to go. That way, if anything were to happen to your business and you default on a loan, your personal assets are safe from being used as collateral.
Good business credit comes from planning ahead, paying your bills on time, and limiting how much debt you have. Pay your credit cards off monthly if possible. Only take out loans with affordable interest rates and repayment terms.
3. Analyze Your Monthly Expenses
Budgeting should be a weekly or monthly process. Your expenses and income will vary, and you need to know what to expect with both.
Your accounting software should have a list of upcoming expenses. When you work on your budget, keep this list with you. Then, print out an itemized report of your Accounts Receivables.
Go through the AR report and get a good feel for what you can reasonably expect to see coming in over the next few weeks. This requires knowing your clients and how they pay. Some clients will pay immediately upon invoice, some wait for the 30-day mark, and others may wait months.
If there’s a deficit between income and expenses, you have time to prepare for it. Because most businesses have highs and lows, you should have a default plan of action in place for this.
Some businesses have savings from their surplus months that they use to dip into during the slow periods. Others use an accelerated invoicing company, like Now, to get working capital immediately on the money they are owed but can’t wait for.
Having a plan for slow periods helps you avoid taking out unnecessary and expensive loans. You can keep your cash flow consistent and ride out the lulls confidently.
4. Set Aside Tax Money
As a small business owner, filing your taxes can be a scary thing. Even with the best accountant who knows how to maximize your deductions, you’re going to have to pay if you’ve had a profit.
Instead of filing annually and getting hit with a big IRS bill, set aside your tax money ahead of time. You can make this a regular monthly expense along with your other bills or pay your taxes quarterly.
Whatever you decide, don’t wait until the last second to have a tax payment strategy. Plan ahead to make it easier on your wallet.
5. Have a Debt Payoff Plan
The best way to have stable finances with your business is to avoid debt altogether. However, that’s not always possible, especially as you’re starting out.
Successful businesses have a strategy to pay off their debt as soon as possible, though. The longer you stretch out those minimum payments, the more interest you’re charged.
With a debt payoff plan, you can tackle high interest rates fast and lower your overhead. At the same time, this action boosts your business credit rating by lowering your debt-to-income ratio.
Planning for your business’s financial outlook is a crucial part of being successful. No matter what challenges you may face, knowing they’re coming ahead of time helps you minimize the damage.
With these five tips, managing your business’s finances will quickly become an easy, efficient process.