Running a small business of your own is no small feat in itself – you’ve got an entire company at your fingertips, and pulling on one wrong thread could collapse the entire thing! And because of that, you’ve got to treat your small business like it’s bigger than it actually is, especially when it comes to dealing with the financial side of your operations.
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Of course, it’s hard to take your eye off the prize and dedicate good portions of your time to each sector of your company. Most of all, it can be hard to juggle all of your responsibilities at once, but being able to balance the books at the end of every day is the most key part of being a business leader.
And so, there are some general, basic financial rules every small business should look to follow. These rules will help you to stay in charge, even when you’re driving your brand through a slow period, and you’re not sure how you’re going to reach baseline profits from time to time. However, with the points below, we’re hoping to help worries like these become a thing of the past.
Always Track the Cash
Cash flow is the act of money going into your accounts and money coming out of it, and even when you’ve got a good sales period going on, the cash flow of your company can be going haywire. After all, if you don’t know what you’re making, and you don’t know what you’re needing to pay for (or how often) you could still potentially fall into debt at some point.
Most of all, make sure you know when payments are due, both when being made by your business and when a customer needs to pay up, if they don’t do so immediately at the point of sale. It’s also a good idea to keep an eye on how fast your inventory sells, and what products sell out first – you’ll be able to avoid overstocking, and maintain a high turnover.
Tracking your accounts should be more than just seeing where the cash is going, you also need to know where you can cut your expenses. This can be anything from getting your printer ink refilled or choosing the best fuel card for small business vehicles. This might not seem like much, but every one of these small savings can add up to help improve your businesses cash flow.
Separate Your Accounts
One of the best things to do, from the initial founding of your business, is to separate your business and personal accounts. Don’t let the money you make via your company filter into your bank account that deals with home bills and food shopping. Instead, look into opening up business bank accounts that’ll help you to streamline profits, deal with costs without impacting your overall financial wellbeing, and even help you to take on more customers.
Because good business bank accounts will understand your business needs; most of all, a bank account that’s primed for commercial purposes will carry far less heavy fees when converting foreign currencies. And seeing as the business you run probably operates online and internationally, that’s a big worry.
You don’t want to have to price items any higher for those shopping outside of the country, but you don’t want profits to take a hit either, and this is a good way to filter out a problem like this. Similarly, you don’t want any financial problems that come into your business to affect your home life either. And finally, it’s much easier to use separate accounts for tax purposes as well! Plus, small businesses are legally required to have a business bank account if they earn over a certain amount.
Small Businesses Should Always Prepare for Disaster
Just like you’ve got at home, your business also needs to have an emergency fund to see it through times of hardship. Something that carries about 3 to 6 months (at least) of your average trading profits at all times can help to keep the lights on and the supplier delivering during the slowest of periods.
The current pandemic has taught us that the average small business could only survive for about 27 days without taking in any profits, which is less than a month. Most businesses have had to shut for upwards of 12 months in the past year and a half, and that has spelt disaster for a lot of them.
A lot of businesses try to aim for upwards of 12 to 24 months of profits tucked away in a savings account. Moreover, try to use an account that generates high interest as well, for a bigger, guaranteed safety net even when you cannot actively make money.
Small businesses have the biggest chance of failing, thanks to just how cutthroat the financial world can be towards them. So, make sure you’ve got the basics of navigating this world down, and try to ensure your business has a good financial foundation set for the future.
