Running a business is a project that consists of many tasks. Still, when one makes a statement that the finances are, by far, the most important aspect of running a business, it’s unlikely that you’ll find anyone to argue with. This is a simple matter of fact – how well your business is doing financially is how well your business is doing. There are no two ways about it. With that in mind and without further ado, here are the top five financial tips to help you improve.
1. Focus on cash flow
One of the biggest mistakes that small businesses make is running too tight when it comes to their finances. They either spend, reinvest, or pocket all of their profit, and there’s nothing left in the bank. So, one of the first things you need to do is learn how to improve your cash flow.
- Send invoices promptly and accurately: Some of your clients pay immediately, and you delay sending the invoice because you’re reluctant to engage in more paperwork. However, by automating this, delegating it to an accountant, or using software (something we’ll discuss later), you’ll stand a much better chance at getting your money.
- Incentivize early and cash payments: People who are willing to pay right away or up-front should get a discount or a sweeter deal for their trouble. This way, they’ll have a reason to focus on the cash flow and reimburse you as best as possible.
- Manage your inventory more efficiently: One of the key reasons why you’re short on cash is the fact that you’re overstocked. Just be more efficient when it comes to reordering. Instead of having all that capital tied down in a warehouse somewhere, keep it as cash.
By having more cash, your company will become more resilient. You’ll always have an extra option for problem resolution, and your entire enterprise will benefit from it.
2. Make the right investments
Eventually, you’ll get some excess money on your hands, and it’s the way you reinvest it that matters the most. You see, some investments will pay for themselves many times over, and some could wait without causing you any harm or missed opportunities. This might even require a long-term investment strategy on your part.
- Employee training: This is a field where you can’t skimp. When investing, make sure to put it toward your team. This will make them more efficient and loyal, increasing your productivity as a result. Sure, they’ll leave one day, and if you’ve spent so much on their training, it will be an expensive departure. However, this doesn’t mean that it won’t be worth it in the meantime.
- Marketing: Most small businesses invest between 2% and 5% toward their marketing. You can invest more to get a competitive edge. When things go south, this is the last field where you want to cut costs. Reducing the amount of money you spend on marketing will slow your growth.
- Online presence: Hosting a great site and filling it with compelling content will greatly pay itself off. At the same time, your site will be your first stop and your most important sales funnel. In other words, the urgency for establishing it has never been greater.
Each of these investments should be made early due to its scalability. This way, you’ll never come to regret not doing it sooner.
3. Start using accounting software
Even if you don’t want to hire a virtual accountant or an online bookkeeper, you should, at the very least, start using accounting software. There are so many benefits to this decision:
- Saving time: The tools included on a list of the top accounting software available in November allow you to do all your accounting much quicker and more accurately. If there’s any inaccuracy, the program will immediately display an error, so you won’t have to spend hours looking at the forms, hoping that everything checks out. Keep in mind that this time can be spent elsewhere far more productively.
- Real-time insight: The next thing to understand is the importance of real-time insights into your accounting. Audits are no longer necessary since you can check if all your accounts are in decent order at any given moment. You can just click a button and get a detailed financial report. This means that your accounting will be more transparent and available on demand.
- Streamlined invoicing: Previously, we’ve talked about quick, accurate invoices. Well, with the right tool, this will become one of your simplest administrative tasks (instead of being one you dread the most).
You don’t even have to wait for the next year to start. There are no reasons not to get this software and start tracking your accounts right away.
4. Make an emergency fund
As an enterprise, one of the things that puts you behind the quickest is the lack of an adequate emergency fund. You have an expense that you haven’t planned for, and you have to make money appear out of nowhere. This makes you take unfavorable loans and compromise your enterprise in other ways.
- Set clear savings goals: The amount of money in this fund needs to be set in advance. This way, you avoid scenarios where you set aside more than you can afford or keep your emergency fund short of being effective.
- Make a separate account: A lot of entrepreneurs overestimate their self-control abilities. They believe they can leave the amount in the account and treat it as their emergency fund. This won’t work, and you need to have a separate account.
- Just start already: Even if you can’t afford to start an emergency fund, you must start. The finances will never feel much better subjectively, and you must develop a habit of setting money aside (even if it’s just $100 at a time).
An emergency fund might just be the lifeline between your business making it and failing along the way. After all, financial hurdles are one of the main reasons why businesses fail. The key thing to remember is that while motivating yourself to get started is hard, it’s well worth the effort.
5. Adopt better debt management strategies
There are not a lot of businesses that can afford to run debtlessly. So, if debt is an inevitability, the only sensible thing to do is to learn how to run your debt more effectively. Here are the three most important debt management strategies to help you out:
- Run a debt inventory: Make a list of all your debts. Better yet, make a graphic representation of the outstanding balances, interest rates, and repayment terms. Ensure you have them somewhere in clear sight, and make the chart as detailed as possible.
- Automate repayment: Sometimes, the biggest problem is forgetting the credit payment. By automating and making sure that, on the given day, there are enough funds in the account, this will not be a problem, and your credit score will skyrocket.
- Prioritize or consolidate: You need the right approach to repayment, and there are two ways to do so. You can either prioritize the smallest debts (those you’ll repay quickly) or those with the highest interest rates and pay them off first. You can also turn all your debts into a single big one, making managing it easier.
Ultimately, debt is not the enemy. Like anything else, it’s a tool at your disposal for you to use as you please.
Getting a stronger grip on your finances will put you more in control
It doesn’t take that much more work to drastically improve your finances. Just prioritize cash flow and determine which investments will return the most in the long run. Then, start making an emergency fund and change your outlook on your debt. Most importantly, there are so many amazing accounting software tools out there. So, pick one and start using it.