10 tips for the small business owner on managing their finances
If you’re a small business owner, you have a lot on your plate. Not only does the entire fate of your business rest in your hands, but you also need to acquire a lot of knowledge about things that are not necessarily your area of expertise. For example, you’ll suddenly have to wear the hat of human resources (interviewing, hiring, etc.) and IT (setting up a business email, choosing appropriate software, etc.).
But perhaps the most important part of running a small business is learning to manage your finances. Keeping your finances in order is the only way to ensure that your business stays afloat — but more than that, it’s the way to ensure that your business succeeds. It’s one thing to stay above the red, but it’s another thing entirely to turn a respectable profit. Managing your finances can help you achieve that.
Here are 10 tips to help manage the finances of your small business:
- Keep a separate business account. This may seem obvious, but many small business owners start off by financing their businesses out-of-pocket. This will get messier quicker than you can say “overdraft” — so if you want to start off on the right foot, make sure to immediately separate your business account from your personal.
- Track expenses and income. Your business cannot exist without a budget — how much are you spending, how much are you earning, are you covering your expenses? Whether you prefer to use Excel, an app, or accounting software — it doesn’t matter, if you’re tracking the monies coming in and going out.
- Take a salary. Don’t be a martyr and work for free, but don’t be greedy and take so much that your business will go bust. Create a budget and take a sensible salary; this way, you’ll be able to breathe without stressing about money, and you’ll also be able to see if your business model is viable.
- Don’t spend money before you have it. When you’re starting out, it can be very tempting to create business cards, magnets, stationery, marketing materials, and more — all before any money has come in. While you may want to invest a small amount on ads to generate business, resist the urge to go overboard, as exciting as your new venture may be.
- Know when to apply for a loan. Every small business owner hopes that they’ll never need a loan, but the fact is, sometimes you do need it. If you have a solid business model, it’s a good idea to get a loan before you find yourself struggling — because once you’re in trouble, it will be harder to get, plus your rates won’t be as good. If you take a loan before you’re in trouble, you can use the money to help you grow and expand, as opposed to using it as a bailout.
- Open a business savings account. Make monthly deposits into a business savings account, which you can use as an emergency fund, or even better, for when a good opportunity comes along.
- Stay on top of deadlines. Bills, salaries, loan payments — each come with their own deadline, and it’s up to you to make sure that everything is paid on time. On the flip side, it’s a good idea to set up deadline reminders for accounts receivable. If you’re only paying your bills but not getting paid yourself, that’s a recipe for disaster!
- Use accounting software — and choose wisely. Accounting software can help you keep track of money spent, received, and owed; different software products also allow you to track inventory, store contacts, create invoices, etc. Do a little research and see which software offers the tools your business needs. If you’re a one-person operation, choose software that has responsive customer support so that you can get help if you get stuck.
- Set aside time to review your business finances. Ideally, this would be every day, but since you’re juggling a lot of balls, every other day or twice a week is better than nothing. Reviewing your finances on a regular basis is a great habit to get into; it can help you stay on top of things and avoid unpleasant surprises.
- Hire an outsourced CFO. If your business is growing and the finances are becoming more complicated, nothing can ease your burden quite like outsourcing some of the financial responsibilities. In this case, hiring an outsourced CFO like The CFO Squad offers is a good solution. You won’t have to pay the full-time salary + benefits that a full-time CFO requires, but you’ll get someone with financial expertise overseeing your finances.
Managing your business’s finances can be daunting; Don’t Be Daunted
While it’s essential to manage the finances of your small business, it’s also essential not to get overwhelmed by it. The key is to find a system that works for you; whether that means setting aside a half-hour every day to track and review or getting help from an accounting software or an outsourced CFO — as long as the system works for you, it’s a good system.