Eliminating unexpected costs should be among all small business owners' top priorities. After all, financial surprises can damage the long-range economic health of any company, regardless of its size.
Here are 10 tips to help you avoid these unpleasant surprises.
1. Do Some Advanced Planning. Conduct thorough market research before you start your business and while you run it. This enables you to make informed decisions and take only the most advantageous calculated risks.
2. Consult an Expert. You probably didn't go into business to be an expert in tax rules and regulations. Consult an accountant or tax adviser to ensure compliance with state and federal tax laws and avoid costly mistakes.
3. Create a Business Plan. A well-crafted business plan and budget forecast proves to investors and potential customers that you're serious about the financial obligations of running a small business.
4. Keep Personal and Business Finances Separate. Allowing personal and business finances to mingle increases your personal liability and decreases your ability to manage bills, taxes and other payments.
5. Avoid Sloppy Accounting Practices. A small business owner attends to the books every day. "Improper accounting procedures can result in unpaid debts, uncollected income, shortages of cash and even bankruptcy," notes Brian Stupp for IOU Financial.
6. Implement Internal Controls. Some of the worst financial surprises result from employee embezzlement. Establish internal controls to minimize this risk and regularly review all key financial documents like invoices, bank statements and purchase orders. Take special care when determining who is responsible for signing the checks.
7. Build Up Cash Reserves. For small business owners, expenses (rent, utilities, payroll, merchant fees, etc.) are everywhere you look. If you're not careful, you could quickly run out of cash to pay these bills. That's why every business should build up a reliable cash reserve. But, cautions StrategicPoint Managing Director Derek Amey, don't go overboard: "In today's low interest or nonexistent interest rate environment, having too much cash means it's not working to grow your business and should be used elsewhere."
8. Address Late Customer Payments. Late payments from customers can hit small businesses especially hard. Be sure new customers fully understand your payment policies — don't be shy to remind them — and provide incentives for early payments. Make the payment process easy and convenient for customers, and don't be afraid to enforce penalties for late payments.
9. Find a Financial Mentor. You may already have someone in your network you turn to for leadership or management advice. Seek out the same in a seasoned financial mentor, who can save you from making potentially crippling mistakes.
10. Build a Great Team. A team of skilled, hardworking employees is a substantial, but often necessary, business expense. Simply put, there's no way your business can grow without a team of employees you can count on.
Business owners might face an unpleasant surprise here and there, but following these tips will go a long way toward eliminating unexpected costs and facilitating new growth for your business.
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