Most small business owners discover quite quickly how difficult it can be to make it in today’s competitive market. One of the most important things to realize is that running a small business always means having to understand almost everything about your business.
That doesn’t just mean the product or services that you’re offering. It also includes the marketing, sales, even IT, and especially finances.
In fact, small business finance is one of the most difficult topics for small businesses to get a good grip on. It is often quite overwhelming to wrap your head around how much financial knowledge you’re missing and how long it would take to learn it.
That’s why we’ll look today at the 7 best tips to make sure you master your small business finances.
Tip #1: Know your financial statements
Although there are generally a lot of financial documents that one can learn about, there are a smaller number of ones that are absolutely essential for any business owner to know.
These documents are:
- cash flow statement – this document helps you to check your investments, financing and operating activities. This important statement helps you to determine exactly how much cash is flowing into and out of your business for the specified time (usually monthly). With this information you can understand your cash management trends and will help you to keep your business solvent.
- profit and loss statement – this document, also known as an income statement, will help you to review your income and expenses. The P&L statement usually covers a time period of anything from a few months to a full year.
- balance sheet – this document will help you to get a snapshot of your business at any time. It looks at your assets, liabilities and shareholders’ or owner’s equity. Your balance sheet, as the name implies, should be balanced.
When you get greater understanding of these three important finance documents, you’ll have a much clearer picture of your company’s overall financial status.
After that, you will be able to understand more deeply the other financial documents that will be helpful for your business.
Tip #2: Get on top of your invoices
One important thing for handling your finances is to be sure and stay on top of your financial responsibilities. As all business owners know, it’s quite easy to get swamped by all the other aspects of your business.
However, there can often be so many things that you need to do that you end up procrastinating on the important (although less interesting) parts of your business.
One of these is sending out invoices on time. In order to help boost your cash flow (mentioned above), you need to get your invoices out as soon as possible. After all, the faster you send out your invoices the faster you’ll get paid as you’ll be in front of most of your clients’ accounts payable processes.
Although it is sometimes time-consuming, there are many great solutions out there, such as online invoicing software that can help minimize the time. These can be free or paid, and generally have lots of features to help you do your invoices and track your expenses.
Tip #3: Separate your business and personal finances
Many small business owners fall victim to this. They start off not really sure whether they need a separate bank account, so they generally mix up their business and personal expenses.
They end up using the same bank account and cards for all their personal and business purchases, even though this will cause lots of problems when tax time comes around.
It is very important then for businesses to be strict with their business and personal expenses. First of all, you should get a separate business bank account. Afterwards, get a card for each account and be very strict about using only your business card for business purchases.
Secondly, always keep business receipts separate. If you are buying personal and business goods together, ask to separate them into two purchases, one with your personal card and the other with your business card.
You may get a few looks and sighs, but you’ll be well on your way to improving your business finances.
Tip#4: Make sure to ask for discounts
Although this may not seem obvious at first, it is actually not very difficult to get free or lower-priced services. This works especially well for SaaS companies who are generally very willing to give some great offers on their services.
If you are not comfortable about asking for free or discounted items, you may also have success in swapping services. Essentially, this is like bartering, as you will be giving your free expertise or service (for example, content creation) for their service or expertise (SEO).
It can be a one-time event, or you can create a collaboration or common understanding. For example, it could be one-year subscription to their services for X amount of articles per month from you.
There are many possibilities to this type of collaboration. However, you won’t know if there is any possibility of success for of them until you actually ask.
Tip #5: Cut down your expenses
In a very general ting look at costs, you have two different kinds of expenses: needs and wants. Need expenses are usually such things as insurance, property taxes, utilities, food, labor, etc.
They are less flexible, as they are generally the same on a month-by-month basis and reducing them would involve a lot of work.
The other type of expenses, wants, include those costs that are not necessary for your work or personal life. They include things like most clothing, food, and electronics.
Although it is great to say you’re an entrepreneur and always have the newest phone, it isn’t necessary. And that kind of behavior means that you are willing to spend money on unnecessary things.
If you can cut one, then the other, then the other, you will be well on your way to reducing your expenses in general.
Tip #6: Set financial goals and track them
It is generally difficult to understand how well you’re doing on your financial goals without actually tracking those goals.
First, of course, you’ll need those financial goals. It is best to use a goal-setting system, such as what’s known as the SMART system.
SMART represents goals that are Specific, Measurable, Attainable, Relevant, and Timely. They can be for your long- or short-term goals.
Now that you have these goals, it is always best to keep an eye on them. If one of your goals is to cut your expenses by 10% by the end of the year, and it’s the end of the month, see how well you’re doing. If you’ve actually increased your expenses, you will need to adjust your goals or your expenses.
Tracking your goals will help you to be committed to them.
Tip #7: Know when to get help
It is very easy in the I-can-do-everything-by-myself mentality that has taken over entrepreneurship over the last few years to think that you don’t need help. However, this is not just a myth—it’s dangerous. It can lead to serious burnout.
This is mostly because small business owners have gone and put all of the responsibilities on their shoulders. And then when they fail at one thing (you just can’t do everything by yourself), they become guilty or stressed. And then comes the next failure, which increases stress, and this leads to a predictable cycle.
The best leaders know how to delegate. You have to know when to ask for help.
Although there is a financial cost to getting help, it doesn’t have to be very expensive. One great option is to use VAs (Virtual Assistants) for your more mundane daily tasks, to help boost your social media profile, or any other job.
Another option is to use freelancers and independent contractors. The options are plentiful.
The cost of these services may be more than you’d want to expect, but you stand to gain two things:
· more time to focus on the essential parts of your business
· more peace of mind
Both of those are very important for your business, and by improving those, you’ll improve your business finances.
The best finance tips
These are only some of the many finance tips out there for entrepreneurs and small business owners. If you are able to master these, you’ll be able to master your finances in due time.
Taking care of your financial responsibility is not something to be taken lightly. It is a serious affair with a very serious consequence hanging in the balance: the success or failure of your business.
Having tough times in your business cycle is completely normal for many starting up or even well-established businesses. However, there is no good excuse for bad money management, which is where many businesses fail.
Educating yourself and getting to understand the finance principles to help you and your small business finances will help you to gain financial success.
Author bio: Uwe Dreissigacker is the CEO of InvoiceBerry, an online invoicing software for small businesses and freelancers. His experience in the online business world ranges from AdTech to FinTech and online game publishing. When he’s not busy running his company he enjoys everything tech as well as travelling in Asia and Europe.