Anyone who starts a business has the goal of succeeding. No matter how large or small, financial management is the heart of it all. Good management leads to steady income and profits, which is a significant factor in the stability and longevity of the business. Without learning this crucial skill, your business may fold quickly.
If you just got your company off the ground, you, as the business owner, also serve as the bookkeeper. However, you don’t need extensive accounting knowledge to improve your financial literacy.
8 Tips for Financial Stability
Financial literacy is a nonnegotiable skill if your objective is to make your small business succeed. Understand how to manage your small business’ finances and tips for achieving stability in the long term below.
1. Learn financial terms and jargon
Before anything else, you must know the standard terms used in business finances, such as cash flow, balance sheet, profit, and credit limit. If you’ve never taken a class in accounting, it’s a good time to start. Not knowing these terms won’t only make financial management much harder but can also make you look unprofessional, which may deter future investors.
You can take several online seminars or programs to help you learn these terms. However, business finance has a learning curve, so take things slow to ensure you understand what everything means and the impact it makes. All this knowledge can help you better understand which direction to take with your small business to reach profitability.
2. Sort out and monitor your budget
Knowing exactly where your cash is going gives you a clearer picture of your business—if it’s operating efficiently. Find time to sit down and figure out exactly where you’re spending your finances. Listing every expense will help you see if you can cut or reallocate anything to save on costs.
There are several resources at your disposal that you can use to track your budgets, such as spreadsheet formulas or accounting software to automate calculations. Note that some programs may require a subscription, so you must account for those.
3. Use forecasts to allocate your resources
Many companies try to predict their profits for the year using forecasts. These will help you see the ups and downs of your income and allocate your resources accordingly. There may be some months of the year when you see a dip in revenue, so use that information to prepare for the months when your sales spike.
Depending on your industry, you will be able to see when your spikes are and take advantage of the potential profits. However, expenses may increase during these spikes, so you shouldn’t forget to consider those.
4. Figure out fixed costs
Figure out which of your resources have fixed costs to help you stabilize your budget during your forecasts. These could be software subscriptions, rent, utilities, and salaries. Knowing your fixed costs means that you know exactly how much income you need to cover and then build your budget around.
Look for other opportunities to have fixed costs, whether negotiating with suppliers or hiring freelancers with fixed fees. You’ll have a more secure budget plan and more leeway for any surprises from your unpredictable expenses.
5. Send invoices on time
Part of keeping your budget on track is sending invoices on time. Timely invoices tell clients that they need to send payment as well promptly. Conversely, late invoices can disrupt your tracking and lead to wasted time double-checking to ensure that your books are accurate.
Check your sheets monthly to make sure that you’ve sent every invoice and received payment. You can use software programs to set reminders for every client and keep everything on track. There are also other applications found online that can automatically send invoices as soon as payment is confirmed.
6. Business and personal expenses should never mix
Though it may seem more convenient to have liquid assets like money in one bank account, it may be troublesome in the future. You have your expenses to pay for and file different taxes, so mixing the two could cause confusion and inaccurate records.
Filing personal purchases as business expenses may also bring trouble from the law, especially if you attempt to use these purchases to file for deductions. Have separate bank accounts and credit cards for personal and business costs, and be strict about their use.
7. Pay debts
Many companies take out a loan to get themselves off the ground, which can initially seem overwhelming. As your start to earn a profit, start paying off your loan first. Being a debt-free business is less pressure on your budget and allows you to focus on your overhead.
If you took on multiple loans, focus on paying off your smallest first, then slowly work on the larger ones. Avoid taking on another loan because these could add up and become unsustainable. If you need another loan after you’re in the clear, you may need to reassess your budget.
8. Have emergency funds
Even though you have a solid plan and diligently track your budget, you’ll never know what may happen. For instance, the COVID-19 pandemic shut down several businesses unless they could pivot.
An emergency fund to keep you operating for a few months or a year can save you from a slump or failure. You may also use the money to revamp your business plan if your current one isn’t working out. You can dip into personal expenses as a last resort, which may put pressure on or disrupt your private payments. Keep that in mind while crafting your plan B.
Always Keep Learning
Getting a business started and keeping it sustainable is an upward climb. Good financial management skills go a long way, and it’s essential to always remember as a business owner to keep learning. There’s always a new tool to use or a new challenge that you need to tackle.
It’s also important to remember that you don’t have to operate your business alone. Consider looking into wealth management services to help keep everything on track. With their help and your perseverance, you can stabilize your funds and build your business toward success.