8 important financial tips for small business owners
Small business owners are in a unique position. They have a passion, an idea, and experience in their field, but don’t always know the best course of action when it comes to managing their business’s money. A solid understanding of finances can go a long way to help a business succeed. That’s we want to share these tips to equip you with the financial knowledge you need.
Keep business and personal finances separate
Because of the many other things that you have to deal with when running your business, it’s easy to slip into a flexible attitude about tracking money. After all, you already pay your own salary. Why differentiate between business funds and personal funds? This attitude can create many challenges, especially if your current business structure changes in the future. Hiring employees, taking on partners, selling the business, or being audited by the IRS become more difficult when you haven’t been keeping clear records.
To keep things organized, open a commercial bank account for your company—and only use it for your company. That means no taking the business card and using it on groceries, and no using your personal account for office supplies. Disconnecting the company’s expenses from your own will simplify everything from accounting to taxes later in the year.
Create an emergency fund
You’ve probably heard the importance of having a personal emergency fund, but what about one for your business? The Federal Emergency Management Agency reports that up to 60% of business never reopen after a disaster. This statistic shows the importance of being prepared.
When you own a company, there is always the risk of something going wrong. Equipment fails. Employees quit. Customers leave. Natural disasters strike. In all these situations, being left without a source of income can really hurt your company’s ability to continue.
An emergency fund adds another layer of security. It ensures you will be able to continue to pay operating costs during a time of crisis.
Have an open line of credit
Having money set aside will be extremely helpful, but it may not cover everything required to get your business back up and running. You should also consider having an open line of credit.
Some people wait until disaster has already struck to apply for a credit card or loan. It’s far better to do it before. In a true crisis, the funds may not come quick enough for you to prevent larger losses. You also could have a more difficult time securing a good rate. Preparation by setting it up beforehand can alleviate these issues.
Keep a close eye on expenses
Some costs just seem to sneak up on you. Small businesses need to be extra critical of the way money is used. For large purchases like equipment, thoroughly research the item and evaluate all options. Sometimes leasing can be advantageous because it doesn’t require you to pay for repairs and other associated ownership costs. On the other hand, purchasing may be more convenient and can come with tax benefits.
Another aspect to consider is labor. Not everything has to be done in-house. Outsourcing and paying per-task is sometimes a better option than paying an hourly employee, especially if it’s not a job you need done frequently.
Just remember that what is good for another business might not work for yours. Take your own company and priorities into account before making a decision based on recommendations.
Maintain clear, up to date documents
One problem that small businesses often encounter is a lack of record-keeping. This happens because the owner is the only one looking at them, or everybody involved is familiar and doesn’t need to track things formally.
No matter what the reason, it’s important to keep clear records. You might remember the information now, but a few years in the future, you might need something to look back on.
There are also specific scenarios that require detailed records. Taxes are one. You’ll also need them if you ever choose to make changes in your business ownership or hire new workers.
You don’t know until you ask
Always ask questions, and never just accept a contract without doing your research. Make sure the price you are being charged is fair. If you regularly purchase large quantities from a vendor, it’s reasonable to ask about a discount. Just asking that question at the end of every transaction could save you a lot of money. You might be surprised how much you can get through negotiation.
Make sure you’re covered by insurance
Unfortunately, many business owners pay a monthly policy thinking they are covered, but quickly realize that the coverage is not enough when disaster strikes. The ways you lose money during an unexpected event aren’t always obvious. You might sustain a loss of revenue due to a temporary closure.
Buy a policy that will protect you, not one that is the cheapest. Nobody likes paying the bill, but it is worth it in the long run.
Consult with experts
As a small business owner, you have a lot of responsibilities. Every decision important to your company rests in your hands. Business owners can struggle here. They’re so used to doing everything themselves that even on the most crucial decision they might not seek help.
For areas that require specific knowledge like taxes and law, seek out experts to help you. They’ll have more information than you do and can make you aware of things you might be overlooking.
Nuvision can help your business grow
We work with businesses to provide them with a variety of financial services. We offer real estate and business lending, along with business credit cards, checking accounts, and savings accounts. Learn more about what we can do for your business here.