Opening a small business can be exciting, overwhelming, scary, and fulfilling all at the same time. First-timers put a lot of effort into brainstorming the best and trendiest product to sell, how to give customers great service, and coming up with a great marketing strategy to attract buyers.
Giving some thought to your company’s financial requirements is equally crucial. Your finances can help ensure your business’s growth is stable and continuous. When the financial department takes a hit, other aspects will also suffer.
Running a business requires careful financial planning. Allocating your monetary resources properly is the key to business success. So here are some useful tips for business owners to take note of.
Don’t mix your personal and business goals.
Drawing a line between your personal financial goals and business goals is one key to managing your finances properly. For example, you are torn between investing in a new product and wanting to add funds to your personal insurance. In this case, which one will you prioritize?
One of the reasons why people start a business is to achieve their personal financial goals. But if you don’t know which resources go to your business and which go to your personal needs, both may suffer. Making a list of combined priorities will help you decide when the time comes.
On the top of your list should be the urgent tasks. Write it in such a way where the first one is the one that affects your life the most, and bottom ones are the things that need less attention. This way, when it comes time to make a decision, you can clearly see which task is more important.
Get to know your funding options.
Most small business owners use their funds as capital for their business. Sometimes people use all their savings or max out personal credit cards to begin a venture, but doing so may put them at a financial disadvantage. If your business is capital intensive, looking for other funding options may be beneficial.
One option is bootstrapping. This funding option is best for owners with little to no assets available or those without money from outside investments. Funds from bootstrapping may come from personal investments, loans, and inventory turnover.
One good example of bootstrapping is offering your goods for pre-order. Then, you can use the funds paid by your buyers for manufacturing and other expenses and deliver the products to your customers later on.
Looking for investors is also a good way to jump-start your business, but it’s rare to find investors who are willing to fund new businesses. Banks can also provide business loans, but it involves significant risk. We advise strategic planning so that the money you borrow comes back through your sales and services to ensure your business is secure.
Build a healthy cash flow.
A good cash flow does not mean you are generating a lot of income. A healthy cash flow means allocating funds to different parts of your growing business. Divide your funds accordingly with your employee pay and development, funding new products, buying raw materials, and emergency purposes.
It will also be helpful to make use of an ecommerce bookkeeping to do cash flow analysis for your business. The reports from the analysis can tell you if you’re overspending or underspending on different areas of your company. These services are also useful to help you track all financial transactions and determine if you have positive or negative income.
Manage your business taxes.
Managing your personal taxes may be easy for you, but things may go south when it comes to business taxes. There’s a whole different world of taxation laws regarding businesses. Outsourcing the job of managing business taxes to professional accountants will save you time to focus on other aspects of your business. Professionals also keep you from errors and possible fines.
A certified public accountant knows the ins and outs of business tax laws. Moreover, they can also give professional advice and help you gain potential investors.
Create a risk management team.
At some point, you will experience challenges in your business, and it is better to be prepared in the event that it happens. When starting a business, identifying risks and potential threats are usually not on top of the things to do. Furthermore, creating plans to face business challenges seems like a massive task for new business owners.
For example, you are selling seasonal products. In some months, your sales will be booming and cash will seem endless. There will also be months that could heighten alerts in liquidity risks. These are situations when there are no customers buying the products and you generate very little income.
What will be your solution when this time comes? What money will you use to pay other expenses like employee salaries, manufacturing, rent, and other payables?
Planning solutions can save your business from its ultimate downfall. You can attend seminars on business risk planning. There are also free guides on the internet you can take advantage of. Furthermore, when your business grows, creating a risk management team will surely help your business stay stable.
Have succession and exit plans in place.
Starting a business and already thinking of succession and exit plans? It’s not a priority but having them in place gives you a wider view of the value of your business. Of course, you can’t run your business forever. At some point, you’ll have to pass it down or sell it.
Exit plans are for when you are looking to sell your business to another person. It means that you are also selling the ownership, and once it’s done, you are no longer affiliated with the business. Before getting blinded by offers from a potential buyer, it’s important to know the costs of your business, so you get compensated properly.
We recommend talking to experts and having them alongside you when making deals so you can reach advantageous terms.
Succession plans are made when you intend to pass down your business to other people so that when you retire, business will remain uninterrupted. It’s common for a business owner to pass the business onto a family member. But qualified employees may also be granted the leadership role.
Whether you are letting your business go or changing management, there are still finances at stake. Of course, no buyer would be interested in your business if it is on the verge of bankruptcy.
When changing management, the first part of the plan is ensuring that finances are running smoothly so the new management can focus on adjusting to the new system without compromising other areas of the business.
Have business insurance.
Let’s say you have a client who gets harmed in your business, and damages amount up to $20,000. Is your business ready to compensate for this large sum? Small business owners can take advantage of different types of business insurance depending on the nature of the business—for example, professional liability, product liability, and commercial liability.
Insurance protects you from spending ridiculous amounts on damage claims. 75% of small business owners who don’t have insurance always pay more compensation than needed, which can negatively affect a business.
Give attention to your business liquidity.
You may be delighted to see that your balance sheet shows positive data, but it doesn’t automatically mean that your assets are liquid. One goal a business owner should strive for is having more assets than liabilities. This way, you have something to use when you need funds for short-term financial obligations.
Keeping track of liquidity can give you more freedom to operate and take some calculated risks. Furthermore, a good liquid status helps attract potential investors that can help expand your business.
A healthy financial status will keep your business running smoothly and properly. That’s why devoting time and creating a team that will monitor your financial needs are crucial to your success. If you’re new to business, looking for experts to manage your financial needs will put you in an advantageous position.
We hope these tips help you manage the financial needs of your business. Finance is the heart of your business. It’s what keeps other aspects of your business running smoothly. From manpower, manufacturing of goods, to attracting customers, the financing department will always have a hand in it—so always make sure to keep it in check.
Mike Pignatelli, CPA, is the CEO of Unloop, an agency built to meet the accounting needs of modern ecommerce businesses. As an experienced financial controller, Mike has worked with various seven-figure inventory businesses. Mike and his team are your go-to accountants if you need reliable data to make sound financial decisions.