In many ways, successfully running your small business means setting your mind to finances. After all, it’s not enough to just have a great business idea and a stellar staff; you need to know what your business’s financial health is and how to improve it over time.
That means financial planning. Today, let’s break down six tips for your small business that you can use to ensure long-term financial stability.
Set Realistic Financial Goals
First, and maybe most importantly, you need to set realistic financial goals for your brand. If, for instance, you have just begun a new startup, don’t expect to have enough cash to expand to another retail or brick-and-mortar location within your first business quarter.
Setting realistic financial goals is important for two reasons:
- It will prevent you from overextending by accident
- It will allow you to achieve realistic goals, keeping up your motivation and sense of achievement
Take a look at other businesses in the same industry or niche and determine the financial situation they are in. Use this to figure out strong yet achievable goals for your own business to see consistent success.
Make and Update Cash Flow Projections
You should also regularly make and update cash flow projections. Your business’s cash flow is, in essence, the revenue you can expect from customers. However, cash flow can fluctuate very frequently, particularly in the earliest days of your business’s lifespan, and it can come from many different sources.
Keeping track of which cash comes from which source will help you identify:
- The most common methods by which your customers pay your business
- How much money that is taken in via each source
That’s invaluable information you can use to predict revenue going forward. That, in turn, can help you determine when it’s a good idea to expand, when you should try to save money, and so on.
Don’t just calculate cash flow once. Try to do it regularly so you are always abreast of fluctuating cash flow and revenue for your brand.
Consider and Predict Risks
Every industry has risks, and it’s your responsibility as a financial officer or executive to predict those risks based on their likelihood of occurring. For instance, what’s your risk of going bankrupt? What is the risk of a competitor stealing most or all of your target audience members? These are things you need to think about when planning financial expenditures and expansions.
Once you have successfully analyzed risk, you’ll know:
- Whether you should be saving up for a proverbial rainy day
- Whether you can afford to expand to a new business location
- How you should be using the money you get from your customers
- Whether you should focus on keeping customers or acquiring new ones or both
- And more
More importantly, by considering and predicting industry-specific risks ahead of time, you can come up with action plans if those risks end up affecting your business. For instance, if you predict an economic downturn, saving money ahead of time will help your brand survive the people where other businesses might go bankrupt.
Maintain Accurate Books
Accurate books and financial records aren’t just important for legal reasons (although this is highly critical). They are also important so you fully understand your business’s financial situation at any given point in time.
You won’t be able to make the right decisions as a business leader if you don’t know how much money your brand has, what your cash flow is, and what your daily expenditures are. These are just a few things you’ll understand once you have accurate books.
If you don’t manage the books, make sure they are managed by a trained, trustworthy accounting specialist. That way, you can always rest assured that your business’s financial records are airtight and accurate. You’ll make wiser decisions and be safe from fines if your business is ever audited.
Plan for Taxes
Your business will be taxed sooner or later, no matter how the fiscal year ends up shaking out. With that in mind, you should plan for taxes and tax payments, particularly over the first few years of your business.
Those tax payments might be higher than you anticipate, particularly since business taxes are calculated at different rates and ratios compared to personal taxes. Given this fact, you should save as much money as you can in the first few years of your business’s operations just to make sure you have enough to pay your tax bills when they’re due.
Again, having a good accountant on your staff will help you account for this eventuality and save money where it’s necessary.
Only Use Business Funds for Business Finances
Many entrepreneurs and small business owners end up blurring the lines between their personal and business bank accounts. That’s never a good idea, despite how tempting it might be.
You should only ever use business funds for business finances. Don’t use your personal bank account for business expenses; not only does this cross a gray legal line, but it can also get you into personal financial trouble.
If your business needs more cash, seek out loans, investors, and other revenue streams. Furthermore, never pay yourself directly from the business bank account in an under-the-table way. This looks bad in the event of an audit, and it can confuse your overall business finances.
RELATED: A Step-by-Step Guide to Build Your Business Credit.
Conclusion
Overall, following these six financial tips will help your business maintain maximum financial health over time. Of course, using the right tools will also help you save money and make more money than ever before. Consider adding Gravity Payments to your business as a way to accept credit and debit card payments from your customers today.
