How the Best Entrepreneurs Manage Their Small Business Finances

August 8, 2019 12:41 pm Published by Leave your thoughts
A business finance professional with a calculator

Isn’t it a bit surprising and biased that whenever we discuss hard working and efficient entrepreneurs, we only mention those from multi-million companies and who were able to take their organization towards growth. While experiencing growth and expanding your business is one achievement, managing all the affairs of your small business and keeping it running despite the competition is another.

While you would want to achieve entrepreneurial brilliance while running your small business as well, the above cannot be done without properly managing your small business finances. Small business finances require a completely different approach than large business finances. We believe that there is an inadequate presence of literature governing small business finances for entrepreneurs.

In this article, we study the tips and tricks required for managing small business finances, from the experience and expertise of successful entrepreneurs. As part of our business model, we have had meetings and discussions with plenty of small business entrepreneurs and have gathered financial tips that they believe are necessary and make them great.

There are multiple benefits to staying on top of your small business finance. Besides making sure that cash is present at all times, you can also ensure that you take care of unforeseen business debt and invest just the right amount of cash required for growing your business. Finance is one of the major blocks of your business, and you need to keep a stringent check on it for unprecedented business growth.

In this article, we offer you a chance to learn from the best small business entrepreneurs and develop tricks that can stick with you for a lifetime. Go through these proven tips and tricks that successful small business entrepreneurs follow, to signal growth and success for your business as well.

Keep Proper Track of Accounting

You must keep a proper track of accounting or bookkeeping as most call it. You can hire a bookkeeper to get the job done or automate the process through an accounting software tool (such as QuickBooks).

Most small business entrepreneurs tend to show a lot of neglect and carelessness when it comes to recording their expenses, gains, and revenue. This neglect can prove costly in the long run, because you won’t have a secure record of your earnings and expenses when the need will arise in the future. You would be required to present authentic details of your financial statements when you apply for a small business loan, exit strategy, or exemption in taxes.

If you have shown neglect while recording your transactions, your balance sheet won’t tally, indicating a poor record of your interest towards your business. No business would want to witness such kind of an impact, which is why you need to keep your eye on the prize.

An accurate track of income generation and expenses is also necessary for making budgets and cash estimated. You don’t want to live in a fool’s paradise, without being aware of a cash crunch because you haven’t maintained the right books.

Review Your Costs

Once you have started recording all of your small business expenses correctly, you should take the next step to review your costs and see where you can make amendments.

Where and how you spend your money is a matter of great concern for any small business entrepreneur. You would want your money to go where it is necessary. Careless spending can negatively impact your cash flows and bring you to the verge of bankruptcy sooner or later.

Most small businesses fail to make it big or suffer from bankruptcy early on because they fail to review their expenses and keep a track on them. Reviewing your expenses can help outline all the changes that you might have to make to streamline your cash reserves and to ensure that everything is in check. Your costs can add up quickly if you aren’t maintaining a check on them. Failure to keep checking on your financial statements can come and haunt you later down the line.

Remember to Make Financial Projections

Who’s got the time to make financial projections? You might say while attending a useless seminar on how entrepreneurs should dress up. As an entrepreneur, your job is all about prioritizing your resources and your roles. Making financial projections helps you prepare for what is to come.

Cash flow projections happen to be the most necessary of all financial projections. Cash is the one thing that keeps the engine of your business running. Hence, you must keep a check on it at all times.

Cash flow projections will alert you in time if a cash crunch is coming your way in the nearby future. You can then prepare accordingly and take relevant measures to address the situation. A cash crunch that isn’t projected can severely jolt your business. You would see your access to cash being restricted and will have to make do with whatever little amount you have left with you.

Rather than running for a small business loan or a merchant cash advance during such periods, you must plan and prepare for your cash crunch in the right manner. If your cash flow projects predict that you will face a cash crunch, you can prepare by applying for a loan with a private lender, before the crunch arrives.

Don’t Slack on Invoicing

Slacking off on invoicing is the equivalent of not recording your financial statements and transactions accurately. Invoices, when they are properly sent and received can signal better communication between you and your customers/suppliers. Additionally, invoices are also necessary for adjusting accounts and keeping records in the nearby future.

The tips you can follow here, include:

  • Send out your invoices as soon as you provide goods or services to someone. Make sure you don’t delay the procedure since a delayed invoice is the equivalent of one that hasn’t been delivered at all.
  • Establish clear payment terms discussed with your clients. Make sure that they know about these payment terms and that there is no ambiguity whatsoever involved. Set a payment plan of 7 days, so that none of your payments are forgotten in the process
  • Sending invoices is just the first part, following up on them is the next and most important stage. You need to follow up on the invoices for payment, through emails and SMS.
  • Invoice numbers should be referenced through all communication and you should finally cross-reference them at the time of payment. Make sure you record all details accordingly.

Keep a Separate Business Bank Account

A separate business account is a need of the hour when you start your own business. Most small business entrepreneurs are guilty of mixing their business assets with those that they own. Mixing your personal finance with your business finance is the right recipe for tax headaches and unexplained losses.

Keeping the finances for your business separate would help you in maintaining better check and balance and ensuring that your finances are taken care of at all times. A good business owner should realize the importance of maintaining check and balance in finances and should take preemptive measures accordingly.

Here we mention some of the methods you can follow for keeping your business finances separate from your non-business ones:

  • Have separate bank accounts for both your business and personal needs. The business is a separate legal entity, which is why it needs a separate bank account. The separate bank account will ensure that all the needs of your business are separately being taken care of, without interference from your side. Maintaining the same bank account gives no check and balance at all, and can disturb your business financial reporting and analysis.
  • Additionally, you should also ensure that all the credit cards and other cards you have for your business are maintained separately from your cards. Your credit card shouldn’t be used for funding business purchases.
  • Don’t take profits or cash from your business, without recording it in the books. We have already mentioned the importance of recording expenses above, and we believe that you should record all your expenses as they are incurred. Business cash or finance that is taken out by you for your expenses is known as drawings in financial lingo and is shown as a deduction from your business capital.
  • Additionally, you should also keep an adequate track of what you loan to your business. Whatever you invest in your business as capital or give to your business as a loan should duly be recorded in the books under the relevant account. The loan will be recorded as a liability while the invested amount will be recorded as capital.

Following the tips above will ensure that your business finance would be treated separately from your personal finance.

Pay Yourself First

Running a business is no easy task, and you should assign a salary for yourself accordingly. Many small business entrepreneurs are pretty vague when it comes to how they pay themselves. Most often end up taking the limited profits their company makes, leaving the business high and dry.

We understand that you might be tempted into grasping all of the initial profits, but that isn’t how companies thrive. You need to understand that if you want your company to grow and achieve success, you should not completely deplete the resources.

However, you would want some return on the time you are investing, which is why we recommend you to take a fixed percentage out from the profits being made by your company.

For instance, take 10 percent of the profits you are making and deposit them in your account. Remember to mark this transaction in your books, so that you follow the points we have mentioned above. Mark this transaction as an expense under the head of the owner’s salary.

Remain Frugal

What you save by being frugal right now will come back in your favor down the line. Most entrepreneurs often underestimate the impact of remaining frugal and spend lavishly on their business. This laving spending can harm your cash flow and starve your business from growth.

You need to recognize, the early gains, regardless of how tempting they might be, must be invested back into the business. Give your business the wiggle space it needs and allow it to achieve growth the way it needs. If you dictate terms through your lavish spending, you might take away the financial stability of your business.

Keep Traveling Costs Low

Most small business entrepreneurs don’t have the kind of travel routine that entrepreneurs for big enterprises have, but they still have to go around and attend meetings with suppliers, customers, and other stakeholders.

Knowing the limited budget such entrepreneurs have, you must keep the traveling costs as low as possible. If you’re going out of town for a meeting, make sure that you don’t overspend on any luxurious accommodation or travel option. Travel in an economy class ticket that you know you can afford. Additionally, make sure that you mark your stay at hotels that are perfect for stay. You cannot afford to set a bad precedent for your employees by overspending on luxurious details.

Just like we have mentioned above, there are numerous advantages of remaining frugal during the early days of your business. You need to make sure that you don’t go looking around for luxurious items and maintain a low profile in how you manage expenses.

Traveling is something that you cannot avoid, but you can, however, make sure that you spend as low as possible on the trip itself. Make sure that your business trip is planned in a way that you would plan your trip.

Take Care of Legal Fees

Most entrepreneurs face the conundrum of legal fees when they first start their business. Do they hire a lawyer for help, when the rates for legal services are currently marked at $450 per hour, or do they try to maintain legalities by themselves, and hope that they are falling in compliance with the law?

This conundrum has two sides to it, with each side coming with its pros and cons. Having worked with numerous small business, we understand how a business can get rattled if they don’t take care of legalities. Small businesses don’t have the kind of cash in the kitty to pay hefty fines and penalties for non-compliance. Even if the non-compliance is unintentional, you will have to pay the penalty for your lack of knowledge. Knowing this outcome, businesses must realize the importance of staying compliant and taking due care of legal aspects.

Legal help might sound like a major expense for a small business, but let us assure you that you will get to enjoy the benefit of this expense soon.

Do take care of these tips while hiring legal help:

  • Make your expectations about what you want extremely clear. Don’t mince your words and let your lawyer know what you’re looking for. Your lawyer should serve you in the best manner possible, which is why you should provide them with all necessary information for the job. Let your lawyer know the result you expect so that they can eventually deliver on it.
  • Choose a billing option that is more convenient for you. If you think that the per-hour rate is more suited for you, then you can go with that billing option. However, if you can make payments for the entire project at one time, then that will be more convenient for you.
  • You can also ask your legal help about any deferred payment options or plans you can follow.

Take Care When Expanding

Most small businesses often go in the pits of bankruptcy and failure, when they try to expand aggressively, without accounting for any of their business’s needs. You must take due care while expanding your business so that no aggressive costs have to be borne.

If you have plans to expand your business forward, make sure that the expansion process is done wisely and steadily. Investing all of your assets and large amounts of money into expansion plans that are poorly designed or maneuvered can be a bit too disastrous.

You should take care of your expansion plans yourself and follow a path that is best for you. Aggressive growth sounds pleasing when you first talk about it, but it isn’t viable in the long run.

Thus, you need to be extremely careful when you are expanding. Even the slightest misstep can impede all your plans and will waste all of the resources that you have so conveniently saved for yourself.

Don’t Shy Away from a Loan

One mistake every small business owner is guilty of committing is shying away from business loans to help them out during tough times. The interests of your business should be safeguarded at all times, which is why you should make sure that you stray safe from going towards loan options that you cannot pay for. However, you will be doing your business a disservice by not taking a convenient small business loan when there is a need for one.

While you could only get a loan from banks and other financial institutions in the past, we now have multiple private lenders that make the process of getting a loan easier and more manageable. Banks have strict qualification procedures, through which it is hard for a loan plea to be approved. Considering the strict procedure for approval, not many businesses saw their loans being approved. Additionally, the personal credit score of the entrepreneur and the business credit score of the company were also used as excuses for rejecting the loan.

Knowing the complications banks had, businesses had to deal with not taking a loan at all. These restrictive policies were damaging for most businesses, as they were left without a possible solution to follow for adequate financial assistance.

The conundrum of the past doesn’t apply to business loans now, as private lenders have made the whole process easier and smoother. You can now get conventional loans with affordable repayment plans that you can easily get qualified for. You can easily get your loan approved from the lenders. Your credit score will be accounted for, but it wouldn’t be used as an excuse for rejection. Most private lenders use your credit score as a means to set a rate on your loan. A good credit score will get you a good rate, while a poor credit score will get you a higher rate.

Waiting too long before taking a business loan is a recipe for failure and might put your business in deep risk in the long run.

Go for Renting Instead of Buying

Most small business owners do not have the luxury of spending too much on their brand. Small businesses have limited access to capital, which is why the best option for them is to rent rather than buy.

Buying equipment, office space and every other thing required for operations can leave a severe mark on your cash flow. You should look to safeguard your cash flow at all times, which is why the best way forward is to make sure that you go for leasing or renting over buying.

From the equipment and machinery to the office premises itself, the best small business entrepreneurs don’t prefer buying stuff from the word go. Take it one step at a time and you will surely reap the rewards of being patient.

You should make sure that you have enough capital with you at all times so that you are planned and prepared for any emergency that comes in the nearby future.

With these tips from the best small business entrepreneurs, you can surely safeguard the interests of your business and enter the future with better plans.


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This post was written by firstdownfunding

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