Sep 10 2024
Small businesses can make many financial mistakes, especially in the early days. Not understanding what records you need to keep, what is classified as business expenses, managing cash flow, and overspending are traps business owners can fall victim to at any point in their journey. No one is exempt from financial difficulties, regardless of how good you are with money.
In fact, cash flow is the number one reason businesses fail, and the majority cease trading within the first five years. What can you do as a business owner to avoid this conclusion?
Attempting to manage finances alone is a significant mistake. Whether it's through ongoing assistance from a Bookkeeper who handles your income and expenses, the use of automated expense software, or occasional guidance from a financial advisor or accountant, seeking expert help is crucial. Neglecting to do so is not advisable. To stay afloat and maintain a healthy financial status, professional help is a necessity.
No matter how good your forecasting or finances are, there will always be lean times. Planning for and preparing for this eventuality will put you in an excellent position to ride out any storm.
Small businesses should aim to have at least 3 to 6 months of funds, ideally more, in an emergency fund to cover all expenses. This should include wage bills, invoices, rent, utilities, insurance coverage, and anything else essential for your business to operate if you aren't generating income. Having this buffer will provide a profound sense of security, knowing that you have a financial safety net to support you until you turn around your situation.
A good credit score is vital in all aspects of life, especially business. This means not taking out too much credit at once, paying all of your loans or credit cards on time and being mindful of the type of credit you take on as a business and your ability to repay it in full. By managing your credit responsibly, you can maintain control of your financial situation and avoid unnecessary stress, feeling empowered and responsible.
Optimising billing can ensure that you're setting yourself up for financial success. If you have clients who are inconsistent with payments, or you can't rely on them to pay in full or on time, you need to look at how you can reduce or eliminate this. By implementing strategies such as small discounts for early settlements, subscription deals, or penalties for late payments, you can take a proactive and strategic approach to managing your cash flow, feeling in control and strategic.
You also need to ensure invoices are sent quickly and accurately to encourage early or on-time payments and prevent people from making more excuses to put off payments.
While not an exhaustive list, these tips are great ways to ensure you are working toward healthy business finances. They will help you manage your income and expenditures and put you in the best position to ride out lean times.
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