Owning and operating a small business is incredibly challenging. You often have a very small team of staff, and as such, you are still heavily involved in all areas of the business. Managing your small business’s finances can often be daunting, but with the right strategies, it doesn’t have to be. This is why we have put together the following pieces of advice for you. Keep reading to learn more.
Protect Yourself, Your Finances & Your Assets
Firstly, when you own a small business, it is incredibly easy to find the business creeping into all aspects of your life, both personally and professionally. However, this is not advisable. Firstly, allowing business finances to mix with your personal finances is a huge no-no. Keeping your personal finances separate from the business’s is important; otherwise, you risk muddying the waters tax-wise. In keeping them separate, you also help to shield yourself and your personal finances from liability.
During the initial phases, you might need to act as a guarantor for your business in order to secure financing. However, as soon as you can, you should begin to shift these liabilities onto your business. In doing so, you can help to avoid any personal responsibility for debts incurred by the business. That being said, if the business is a sole proprietorship, then your personal assets could still be vulnerable. Think about the structure of your business and what this will mean in terms of liability and taxation.
Finally, you should also do your best to keep things separate for your mental health too. Running your own business is a huge undertaking, and it is often stressful, especially when you are just getting started. It is likely that you will need to dedicate a lot of time to your endeavour, but you should try not to sacrifice your personal life if possible. This is because devoting too much of yourself to your professional life with no downtime can lead to burnout. This only has significant implications for your mental health and would also damage the business too.
Budgeting is Key
Any business, regardless of its size or perceived success, will need to work to a budget. It is used in all areas of the business to provide an idea of the robustness of the business as well as being integral to decisions made in regard to the day-to-day running and management. A very basic budget will track incomings versus outgoings every week, month or quarter, as the case may be. Over time, with a few budgets to look back on, you can then begin to think about forecasting expenses for the future. These documents are not just vital for internal business uses. They can also be used by external parties like investors.
When creating a budget, there are a few things that you should look out for. As mentioned above, you should start by simply tracking all expenses associated with the cost of running the business. Do this for a month or two. You should then have a good idea of the fixed costs; these remain the same every month. The variable costs are a little harder to plan for because they change, but you should ideally be able to come up with a realistic estimate of what these are likely to cost. In some instances, it might be necessary to account for fluctuations. This could be seasonally, depending on the business. However, if you outsource abroad, then you might also need to consider the fluctuating cost of converting your currency. However, business-like Silverbird, which is a financial specialist, can help to advise you British multi-currency accounts which might be beneficial to you.
Developing Saving Strategies is a Must
Small business owners often have to weather more financial uncertainty than bigger companies simply because their income and costs can fluctuate. This is why you need to have a robust savings account to help you to withstand the leaner months. Having solid saving strategies can help you to build up your savings more quickly. It might be worth considering your business’s bank accounts, are they optimised in terms of interest rates to give you the biggest bang for your buck? Next, think about automating your savings. Set up a standing order to transfer a certain amount of money from your business’s current account to your savings account. Lastly, you should also think about any debts that you owe. Paying down your debts quickly helps to build your credit score, which would put you in better stead should you need to borrow money. Also, once the debts have been paid off, you will have more money to dedicate to your savings and other business expenses.
Look for Ways to Maximise Income
Next, you need to look for ways to maximise your business’s income or profit. This is often challenging for smaller fledgling businesses. It makes the most sense to begin by looking for ways to cut costs. Do you have any unused equipment or supplies? Sell them off to make some money. Can you change your suppliers or negotiate a better deal? It might even be worth looking into changing your utility providers to save money on the bills.
Investing in technology will constitute an upfront cost, but depending on the tech, it can make your life easier and even help to save the business money in the long run. You should do your research to work out which tech or software would make the most sense for your business. Think about the areas in which your business struggles or tends to waste time and resources; it might be worth looking for a solution to address these concerns. Finally, you might also want to consider diversifying your streams of revenue by offering new goods or service, entering new markets or otherwise exploring your options when it comes to making sales.
Stay on Top of Cash Flow Management
Cash flow management is the final aspect of financial management that small businesses need to take seriously. It is key to the financial planning endeavours of your business. Firstly, you should think about going as paperless as possible. Storing financial data online and utilising software helps to keep it all in one place, which makes sense when it comes to fulfilling your tax obligations. You should also consider automating all fixed expenses. This removes the possibility of missing payments and incurring fees and penalties.
Otherwise, you should remember to stay on top of the cash flow, regularly assessing and monitoring it; this allows you to then spot issues before they can snowball into bigger issues. You should also have a plan in place for slower periods or an off-season; in order for your business to survive, you need to have a plan in place. Always provide invoices for your goods or services in a prompt manner, and don’t be afraid to chase up payments. Solid cash flow management is imperative in ensuring the stability of your business long-term.
To Sum Up
Making the effort to employ solid financial planning strategies and prioritise money management advice is crucial to the business’s survival long-term. As a small business owner, the lines between your personal and professional life can become blurred, but this should be avoided; clear boundaries are key. Budgeting, saving strategies and cash flow management are all also key to your financial planning endeavours.
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