Many small business owners utilize specific habits in regard to their finances that enable them to run a successful business. As there are a plethora of ways to sustain and improve their business’ financial success without making any major fundamental changes, some common habits are detailed below.
Conduct regular reviews of financial statements: Reviewing the company’s financial statements on a monthly basis (or more often if preferred) will provide a good understanding of what the business revenue and expenses are and how much business spending really varies. Once there is an understanding of the average expenses and earnings, small business owners then can begin to divulge into how to save money and potentially make even more. Conducting a review of the company’s financial statements regularly can be helpful in identifying trends and allow business owners to make any necessary adjustments.
Establish a budget/forecasting: Creating a budget and monitoring spending and expenses is a great way to ensure business finances are always under control. When creating a budget, it should at the very least identify the money that is expected to be made along with the amount of expenses that are expected to be paid out. Budgeting can help small business owners to adjust to any unforeseen circumstances/ conditions and provide an accurate state of the company’s finances. During the process of establishing a budget it can be helpful to also use conservative revenue forecasting to avoid over budgeting and putting the company in a negative spot.
Monitor cash flow regularly: Small business owners understand that cash is essential for running a business. So this is why it is imperative to monitor the cash that is coming in and going out in order to ensure there is enough money in the bank to cover expenses, payroll and other costs. Monitoring cash flow can also allow small business owners to weed out unnecessary spending even easier and see where the budget may need adjusting. Updating and adjusting the company’s budget periodically is also very helpful as all small business owners should ensure every penny is tracked to ensure nothing is slipping through the cracks.
Use an accounting software/tracking system: Most successful small business owners utilize an accounting software (such as Intuit QuickBooks or Xero) that simplifies the process of managing the company’s finances, while in turn, allowing the company to maintain clear and accurate financial records. An effective accounting software can help automate the process of monitoring cash flow, invoicing, and reconciling transactions, along with being able to quickly generate balance sheets, profit and loss, and accounts receivable/accounts payable reports.
Establish an emergency fund: Small business owners know what the various expenses are that need to be covered to run their business. They also understand that unexpected expenses will most certainly arise at one point or another as well. This is why it is imperative to be prepared in the event something unplanned occurs (such as needing to replace/repair a broken down truck or a decline in revenue) by having an emergency fund available. It is recommended to have enough money saved to cover at least three to six months of business expenses to help ensure the business can survive in the event an unforeseen crisis/circumstance arises.
Plan for Tax Season: In order to be prepared to pay business taxes, another good habit to have is to regularly set aside funds specifically for the purpose of making tax payments. (Estimating the businesses quarterly tax liability based on current profits will give a small business owner a general idea of what to expect to pay). This way, when tax season rolls around again, they will be ready.
Keep Business and Personal Finances Separate: Combining business and personal finances can create a real mess in regard to bookkeeping/tax preparation and increases the likelihood of errors being made. This is why it is important to keep things separate. Having separate bank accounts for the business is essential to staying organized and will provide a clearer picture for how the company is performing from month to month. This also makes things much simpler when it comes time to filing taxes, while also helping to establish business credibility.
Secure Financing to Help Grow the Business: Securing additional working capital can be beneficial as it provides a small business owner with much needed funds to be utilized to cover any number of expenses related to the business. However, overborrowing can be dangerous as this can result in the business owner swimming in repayment costs. So if this is a route a small business owner is considering, it is imperative to only borrow what can reasonably be paid back.
If a small business owner feels their company could benefit from an injection of working capital to either purchase equipment, make operational improvements, launch a new product line, hire additional employees, or even cover any unplanned expenses that arise/establish an emergency fund, consider reaching out to
Penhurst Capital. Penhurst Capital specializes in assisting small businesses secure the much needed financing solutions (including term loans, cash advances, lines of credit, or equipment financing) needed to help ensure the business continues to thrive for years to come.
As a small business owner, having strong financial habits and practices in place is crucial to running a successful company but also to ensuring its long-term success. Knowing the ins and outs of the business’ numbers allows the small business owner to make sound financial decisions, adapt to challenges that arise and allow them to be ready to explore new opportunities for the company.
