Money Managed: Avoiding Financial Mistakes as a Small Business
As a small business owner, you’re likely to spend as much of your time trying to avoid mistakes as you are trying to steer your business to new successes. Learning to responsibly handle finances could be the difference between you and the competition. Here are a few tips to put you on the right track.
Setting a budget correctly is paramount to survival as a small business. If you want to avoid overspending, it’s important to accurately estimate your monthly fixed costs, variable expenses, any existing/potential revenue, and to track your profits (or losses) via net profit margin. Understanding the relationship between money generated and running costs is key, and if you fail to weigh these factors correctly, you may soon see the consequences on your bottom line.
Once you’ve set your budget, you’ll need to work hard to ensure that you stay true to any outlined financial commitments. A good place to start is with regular reviews, in which you and your accountant can check your balance sheet and factor in any changes to your incomings/outgoings. If you find that you’re struggling to reduce costs, try shopping for new services/suppliers and cut down on any extraneous expenses, such as team social events or entertaining clients.
Many small businesses fail to utilize technology when managing finances. If you’re digitally based, it’s important not only to use the right software to handle your accounts but also to be careful about how much and where you allocate your resources. Some advanced software, for example, may come with hefty recurring costs, and these will need to pay themselves off. Determining the ROI (return on investment) on a piece of tech is not always easy, especially when the software is not sales-based (e.g. HR or organizational programs).
When it comes to running the accounts themselves, reliable accountancy software is imperative. The right invoicing software for your small business can help you get paid promptly and on time, as well as keep accurate records of your balance. Make sure to look for software that allows customers to pay via the invoice, giving you alerts as soon as customers have viewed or paid and allowing for the option of scheduled invoices on recurring payments.
Beyond your ability to earn revenue and budget effectively, simple admin tasks can also have a surprising impact on your business prospects. If you haven’t already, make sure to fully separate personal and business finances. You can do this by establishing a limited liability company (a Wyoming LLC protects your personal assets from being involved in your business’s legal matters), applying for a business account and card, and then paying yourself a salary. You should also make sure to purchase business/commercial insurance. This can protect you against the risk of a contingent or uncertain loss, such as lawsuits, property damage, employee injuries, or even loss of income.
Even though it may not strike you as a key priority, it’s vital to spend time learning to file taxes properly. These can include (but are not always limited to) income tax, corporation income tax, sales tax (this can vary from state to state), property tax, excise tax (especially if you handle physical goods), payroll tax, and gross receipt tax. Failure to factor in, manage, and pay these taxes accordingly can end up hurting your business tremendously in the long term. Make sure to do plenty of research and take into consideration your location of operation.
As a small business owner, sound financial management should be a top priority. In your efforts to build a successful long-term venture, make sure you don’t neglect the less glamorous but equally important paperwork. It might just save your company.
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