Did you know that, according to a U.S. bank study, 82% of small businesses fail due to poor cash flow management? Prevent your business from falling into this category by educating yourself about finance, seeking professional help when necessary, and creating positive cash flow habits. Below, you will learn priceless tips to keep your finances stable and flowing.
Organizing your finances and the most important tips to follow:
1. Give Yourself a Paycheck
As entrepreneurs, you go through the daily operations, put in hard work to make your business grow, and care for your employees. However, you may overlook one important aspect of the business when it comes to payroll, yourself. You are a part of the business as well and need to be compensated as such. To put it bluntly, even you have essential living expenses that need to be met, right?
A few reasons to pay yourself:
- Increased Motivation and Desire to Work – Knowing you are being paid for the work you put in daily, even if that amount is minimal, is a great way to increase your personal motivation and productivity.
- Gives You More Savings for Your Business
- Banks and Investors – see business owners who pay themselves as committed and are more likely to invest in you in the future.
- If you give benefits to your employees, you can also provide yourself with the same (401K + mark things like your health care cost and your cellphone bill as business expenses–check with your accountant for what is acceptable as a business expense)
There are multiple ways and various amounts you can pay yourself based on the stage your business is in, and speaking with an accountant will help you choose the most appropriate and beneficial option for you.
2. Create a Budget and Review Regularly
A budget is essential for maintaining healthy financial habits and a quick/easy way to start is sitting down on the 1st of each month and writing down your estimated income and business expenses. Then, at the end of that month, you compare your expectations to reality. Repeat the process month-to-month and your budgeting skills will improve and your numbers will become more accurate. It is important to continuously review your budgeting options and situation as your business grows. The plan that works for you now may not be ideal for your future.
Maintaining a good handle on your budget will help you make more educated financial decisions for your small business and identify possible problems sooner. This allows time for any necessary changes or at the very least it gives you a chance to prepare and overcome any issues you may confront.
3. Manage Your Cash Flow
Cash flow refers to the money streaming IN and OUT of your business regularly. Understanding the ratio of cash flow is as important as PROFITS and can help you make more accurate financial decisions. Yes, the amount of profit your business is producing shows success, but if your CASH OUT is more than your business’s INCOME you can see where that would lead to problems. Keeping your cash flow statements up-to-date can help you with the following:
Plan for a better future without fear: Accurate bookkeeping allows you to make wise and educated financial decisions, that you can afford, and lead to a more profitable future for your small business.
See where your money is going: Once you see where your funds are being allocated, you can better identify investments that aren’t working, make adjustments to your budget, and put your mind at ease knowing everything is accounted for.
Protect your partnerships and professional relationships: The last thing you need as a small business is to be late on payments, whether that is to employees, IRS, landlords, or suppliers. Cash flow planning will help you spread your invoices properly and ensure you are never without the funds to deal with them. Because late payments can break those solid relationships, you worked hard to build, and ruin your reputation.
4. Maximize Write-Offs and Deductions
Did you know that only 65% of small businesses actually seek to maximize their companies’ tax write-offs and deductions each year?
These write-offs allow you to significantly decrease how much you owe in taxes at the end of each year and may even give you a larger return. Remember, it is important that all of the claimed expenses are legitimate and provable. To put it simply, the lower your taxable income (income after expenses), the less you owe the government. Does this make sense?
Many business owners don’t realize that some of their daily expenses can be write-offs, especially when you are working from home. These daily expenses can include, but are not limited to an office space in your own home, phone bill, car depreciation from business use, and phone meetings conducted at a coffee house or restaurant.
5. Leave Perfection Behind
Many great entrepreneurs are where they are today because of their desire to be the best, in their area of expertise. However, perfectionism can become a leader’s downfall and hinder the success of your business if left unchecked. Perfection might be impeding your success if you miss set timelines, you are delaying production due to fear of criticism, or you are micromanaging your talented employees. As a small business owner, you need to get away from micromanagement and trust that the people you hired are more than capable of performing the tasks they are given to “perfection,” without your input on every detail. After all, you chose them for a reason. If you are consistently missing deadlines then consider the concept that excellently DONE is better than perfectly INCOMPLETE, especially if it means behind schedule. If you are putting off the launch of a new product, for example, and continuously making the most minute revisions you may just be doing so for fear of criticism. Instead of fearing it, embrace the feedback, look at it as a challenge, and view critiques as your path toward perfection.
“Perfection is the Enemy of Progress” – Winston Churchill
Closing thoughts, the most important thing to realize is that organizing your finances is essential for a small business owner like yourself. If you are not sure where to begin and have no skills in accounting, seek out a professional you trust and it will be like a weight lifted off your shoulders. Here at Small Business Accounting, we work with you, one on one, to create a personal strategic plan for managing every aspect of your business finances. Remember, we want to see you succeed.
Contact us at christy@lookatmybooks.com