Managing business finances is the foundation of any enterprise. It doesn’t matter how great your product or service is or how much it sells if you can’t manage the underlying financial framework.
Many business owners are highly skilled in their industry or focused area of expertise, but less so in the financial side of business. Here are six tips for improving your business finances that you can try today.
- Create a Financial Management Structure
You may think of financial management as pretty straightforward: revenue – expenses = profit. While this oversimplification of financial management is legitimate, it leaves much to be desired.
Consider delving into your financial management plan and creating a detailed structure that suits your business. For example, where do those profits go? Is the owner getting paid? Are you reinvesting a set amount back into the business?
You must also consider the seasonality of your budget and adjust for periods of growth and staleness. By creating a custom financial plan tailored to your unique business, you’re more likely to secure long-term financial success. Consider working with a professional to help lay this crucial groundwork for your business.
- Audit Monthly Expenses
Go beyond tracking monthly expenses and dive into the minutiae. Conduct a monthly audit and determine what areas are adding up quickly and where the opportunities for strategic cuts lie. Get creative and think outside the box as you look for trends in your business expenses. For example, could you negotiate a loyalty discount if there’s a certain coffee shop or restaurant you frequently take your clients to? Does every meeting require catering, or could you change the times?
First, assess your business financing options and see if it’s time for a change. Determine whether your business credit card offer the best terms and rates. This is especially important if your business is well established. You can also evaluate whether your business credit provider offers other benefits. Capital on Tap, for example, offers cashback and travel discounts that could help improve your bottom line.
Set aside time each year to review tools your company uses, fees and subscriptions you pay, and loan terms. Determine whether these expenses still suit the business or if other options or negotiation opportunities are available.
- Set Aside an Emergency Fund
Failing to create an emergency cash fund for your business is a tragic mistake. Allocate a percentage of your profits to a high-interest savings fund. Ideally, you’ll strive to generate enough savings to cover your business for a month if an emergency situation arises.
Start small and scale up over time. Hopefully, you’ll never rely on this money for a shutdown or an emergency expense, but 2020 has shown us that anything is possible.
- Reinvest in the Business
Another common small business finance mistake is failing to earmark funds to reinvest in the business. While many entrepreneurs will reinvest as an opportunity arises, creating an evergreen strategy will help your business rely less on credit when scaling opportunities arise.
Consider earmarking a percentage of your revenue to reinvest in business growth.
- Improve and Streamline Processes
It’s well known that productivity and profitability go hand-in-hand. Streamlining and improving processes can help you capitalize on better time management to make the most of your expenses. Documenting and reviewing procedures in your business is an effective way to accomplish this task.
The invoicing process is perhaps the most important protocol within your business. The more efficient you are with billing and payment processing, the more cash flow your business will have. Focus on improving your billing and payment processes, focusing on accuracy and timeliness.
- Adopt a Year-Round Tax Season Approach
Every business dreads tax season, but it’s less dreadful if you’re adequately prepared. Rather than fueling the tax season rush, consider a year-round approach. Set aside time every month to ensure all accounting documentation is up-to-date and payments are ready to go. Consider outsourcing this task to a bookkeeper (which is also a taxable business expense).
With these simple shifts, you can create a sustainable financial management plan that promotes the longevity and success of your business.