Opening and running a small business is an exciting undertaking. However, it’s no easy feat. According to the Bureau of Labor Statistics data, 25% of businesses make it past their 15th year of operations. While the reasons for this may vary, poor money management practices are often the cause. As a small business owner, you must make smart financial moves to ensure the business’s success. Here are eight money management tips for new businesses.
1. Separate Your Business and Personal Finances
Combining your business and personal finances is never a good idea. It’s easy to get confused when you tie your money together. Open a business checking account to separate your business finances from your personal finances. This will make managing your everyday business cash flows and filing taxes much easier.
Using business credit cards is also a great money management tip. Doing this will make tracking how much you’re spending on business expenses easier. It’ll also earn you rewards on your business spending.
2. Set and Stick to a Budget
Setting and following a budget is one of the most important money management tips for small business owners. Doing this will ensure you’re making sound purchase decisions that’ll work towards growing your small business. Without a budget, you risk spending more than you’re making, a recipe for serious debt issues.
3. Establish a Business Emergency Fund
In business, emergencies are an eventuality. To avoid finding yourself in tight financial situations, you must have a plan for handling emergency business expenses. Consider setting up automated deposits to your business savings account to make your emergency fund goals a reality.
4. Think About ROI
As a small business owner, you must be mindful of where you spend your money and what you spend it on. Measuring expenses and return on investment will make it easier to identify which investments are worth pursuing and which aren’t. Consider the return on investment (ROI) for each of your purchases.
If you don’t, you risk losing money on unproductive investments. Know where and how your hard-earned money is being spent and how it’s paying off. If it’s not paying off, cut back and focus on growing the investments that do work for your business.
5. Keep Track of Deadlines
If you don’t know when bills such as credit card payments, business loan payments, or accounts payable are due, you may not have enough money when you need to pay them. Failing to meet deadlines can sour your relationship with vendors, lower your business credit, and set you back with added interest or late fees.
Stay on top of deadlines to avoid missing bill payments. Keep a record of the due dates for the payments you must make and set reminders accordingly. Put due dates on a digital calendar, paper or phone and establish a regular payment plan.
6. Time Your Purchases
Timing your purchases will help you avoid low cash flow. Don’t make impulsive purchases until you’ve paid your bills. Wait until you have sufficient funds on hand to cover additional expenses. Timing your purchases will also decrease your tax liability. Consider investing in tax-deductible items (like supplies) before the end of the year to claim them on your tax return.
7. Prepare Financial Statements and Reports
All FDIC-insured institutions must submit comprehensive financial information in quarterly reports known as Call Reports, according to the Federal Deposit Insurance Corporation. These reports help to assess the overall health of the banking system. Similarly, businesses should prepare financial statements and reports to clearly understand their financial situation. They also help ensure compliance with regulatory agencies.
8. Understand Your Target Market
Understanding your target market will help you make better financial decisions. For example, if your primary customers are families, you should know that the average household size is 2.7 people, according to the United Nations. Such information can help you tailor your marketing efforts so they’re profitable.
As a new business owner, your money management practices will significantly impact success. Use these money management tips to guarantee your business’s future.