5 financial tips for small business owners


82% of small businesses fail because of cash flow issues. Good financial management is the key to making sure your business is in the 18% minority.

The cruel truth about entrepreneurship is that 31.8% of small businesses go bankrupt in their first year. 50% fail before their fifth birthday. The reason? Most small businesses fail because of cash flow issues. They have no more money!

The good news is that if you are a business owner, you can easily avoid such an eventuality by managing your finances properly. Here’s how:

Good cash flow management

Your cash flow is the total amount of money entering and leaving your business. It is usually affected by many factors, one of the most important being your pricing strategy.

If you undervalue your goods or services, you won’t have enough cash. On the other hand, overvaluation can push you out of business because you won’t make enough sales. So you want to price yourself in that great place where you’ll be competitive enough without having to work too hard for a small salary.

It would help if you also had a good billing strategy to ensure that the money actually flows into the business. If you have a lot of money tied up in unpaid bills, you might run out of cash to stay afloat. If you’re having billing issues, try to encourage your customers and clients to pay on time by offering time-based discounts.

You can, for example, introduce terms like 2/10 Net 30. In such a case, a customer gets a 2% discount when he pays an invoice within 10 days. Otherwise, the full amount is due within 30 days.

Remember to create a budget, which is much easier to do if you have a small business current account. On the one hand, it will help you track your income and expenses. Second, you can use the budget to set an income line and a ceiling for expenses. By doing this, you will ensure that your business always has operating cash flow.

Using affordable credit

Contrary to what many small business owners think, credit isn’t a bad thing when used responsibly. An influx of loan capital can help you acquire equipment, hire more people, meet payroll needs, pay utility bills, and more. Ultimately, a good line of credit will keep you going until your bills are paid.

The trick is to choose an affordable credit product for your business. For example, traditional banks usually charge high interest rates. In addition, you will also be required to pay origination fees, handling fees, packaging fees, NSF fees, late payment fees, prepayment penalties, etc. These fees make bank loans expensive for small businesses. It is therefore important to compare alternative sources of business financing to see what would work best for your situation.

Implement savings techniques

There are many ways a small business can save money. At the top of the list is a separate checking account for the business; it makes it easier to separate your business and personal expenses. In addition, it is essential to monitor the books of account; you can use accounting software such as QuickBooks to help you keep track of this.

Examining things like income and expense records will help you understand your expenses and avoid unnecessary expenses. Finally, assess each expense and whether it contributes to a positive return on investment (ROI). Otherwise, get rid of it and save that money.

Likewise, checking unpaid invoices and bank reconciliations can help you spot instances of inaccurate numbers as well as fraud and embezzlement. Such problems usually weigh on the amount that a company would otherwise have saved for constructive projects.

Source for further funding

From time to time, you may need additional financing to maintain healthy cash flow. We have already discussed debt financing in point 2 above, but it is not your only option.

You can also inject money into the business through equity financing. Unlike debt financing, which requires repayment even if your business goes bankrupt, equity financing does not. Of course, the trade-off is that you may have to cede some control of the business to the person investing, and this shows why choosing competent and congruent partners is essential if you decide to go for financing. by shares.

Invest in growth

Company finances are not just for running the business; they are also intended to cultivate it. So, after you have put in place measures to save and acquire additional capital, you can put money aside to explore growth opportunities.

Growth comes when you invest in innovative technologies, diversify, and attract highly skilled employees. All of these things require funding. So it is better to have a reserve of money ready for when the opportunity arises than to have the opportunity but to run out of money.

If you still don’t know how to properly manage your small business finances, don’t hesitate to call a professional. Qualified accountants will help you put together a system that works best for your business.

You can also start saving now by taking advantage of Benefits of hatching. These economical rewards are designed for small businesses. All you need to get started is a Hatch business checking account.

Michael started Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families lower taxes, increase income, and save for retirement. Michael is passionate about personal finances, side activities, and all things geeks.

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