Handling business finances is a difficult task and that holds true even for small enterprises. Running a business is about providing something useful to your industry or market and turning a profit from it – but if you are not careful with money management, you may end up making critical mistakes that land you in financial hell. Unfortunately, it is still quite common to come across business owners that develop unhealthy financial habits that hinder their own operations. Following are five helpful tips for small businesses that can help owners get a hold of their own finances.
- Understand What You Are Looking At – This sounds obvious, but you may be surprised to find out how many entrepreneurs do not actually understand what the various numbers on their financial reports represent. It is crucial to know about basic financial terminologies, then try to understand your financial report after you have a good grasp on what your numbers represent. Each figure that appears on your financial report is important – and if you are not aware of what they are indicating, then how can you ever manage money effectively?
- Stay on Top of Billing Tasks – Another seemingly obvious piece of advice that entrepreneurs seem to forget is to always stay on top of billing tasks. Forgetting to send invoices out to clients will result in payment delays that you would have nobody else to blame for but yourself. The sooner you can bill your customers, the faster you can collect – and collecting is always good. If sending invoices manually is an issue, there are programs out there that can help set you up with regular invoicing options and automated payment reminders so that you can manage your time more effectively.
- Handle Financial Obligations Efficiently – Once you are updated with customer invoicing concerns, the next step to staying afloat is knowing how to handle financial obligations efficiently. Having the electricity cut off in the middle of a busy workday because you forgot to pay the bills is not just embarrassing, it is damaging to the flow of your operation. Another negative impact stemming from the habit of paying late is the fact that late payments usually accrue penalties and fees, forcing you to spend more than you should. Handle your financial obligations as quickly as possible and make sure you are aware of all the legalities involved. Keep all financial movements recorded so that you know exactly where your money came from and where it went.
- Plan For Emergencies – Nothing ever goes exactly according to plan. The future is riddled with uncertainties, so it is important for business owners to set up a fund for emergencies just in case. Covid-19 is a good example of an unplanned global event that affected everything from local and international supply chains to the availability of American labor. Many businesses were unprepared for this sudden change of events and as a result ended up having to shut down. Save money every month and put it aside until it is large enough to support one entire year of operation – then just keep it intact. When something unexpected arises that affects business, draw from it to handle important expenses such as employee salaries, utility payments, and other key accounts that are vital to operation. If you use up a portion of it, replace it when you can so that it does not get diminished over time. Doing this will ensure that you have a sizable portion of funds at your disposal when you need it most.
- Never Mix Personal Money with Business Money – It is tempting to keep using your business money as a “go to” option for personal expenses, but it is always a bad idea. Keep things simple by segregating your business money from your personal money. In other words, do not mix the two because it can become extremely complicated when the time comes to track finances. Do this by setting up a separate bank account for your business, then use that account to receive and disburse payments that are strictly related to your business operation only. Financial health is all about the awareness of where money came from and where it went, and if you cannot identify these numbers clearly, then you may just be setting yourself up for failure – so be vigilant about this at all times.
At Tukko Labs we have a heart for small and medium enterprises. Stay on board for weekly tips on how to stay in the game – but if you are looking to get ahead then send us a message today and find out how forging an offshore partnership makes sense for you.