Small business financial management must be taken very seriously, whether you have multiple employees or run a single-person business. In fact, as a solo entrepreneur, you've likely made a significant upfront investment in your business, so managing your finances wisely is a key element of your overall growth strategy.
Here are five tips for small business financial management that can help tilt the odds in favor of eventual success:
1. Simplify Your Personal Finances
Avoid getting bogged down in pre-existing personal debts and obligations. Clear the deck of your personal expenses so you're better positioned to focus on your business. In the same respect, keep your business and personal finances separate. Having business-only checking, savings and credit card accounts makes your tax situation more manageable.
"[S]eparating your assets reduces your liability risk of losing everything if something negative were to happen down the road," states financial advisor Mary Beth Storjohann for USA Today. She also advises creating a budget that separates spending "into necessary expenses, discretionary ones, [and] short-term and long-term savings."
2. Monitor Cash Flow
With your income most likely fluctuating at present, it's important to determine a break-even point for your business, pay more attention to cash flow than to profits, keep some cash in reserve and motivate your customers to pay promptly. By staying on top of variable cash flow, you'll be better equipped to handle ongoing obligations and less likely to become mired in a lack of positive cash flow and favorable profits.
3. Bootstrap Your Business
Single-employee businesses tend to grow more successfully when they adhere to the bootstrapping principles of relying on limited resources and keeping expenses to a minimum. This is as much an effective mindset as a guideline for behavior; a frugal approach encourages business sustainability and a dependable cash flow.
4. Pay Attention to Your Financial Records
Record keeping may not be anyone's idea of a good time, but in the event of a tax audit, you'll be glad you've maintained accurate, comprehensive financial records. Diligent record keeping offers a broader perspective on how well a business is performing and enables the owner to make informed decisions about expenses, profits, assets and other finances. This approach can also help motivate you to stay focused on accounts receivables, or payments due from your customers, which typically don't come in as regularly and reliably as expenses do. Invoice promptly and be unswerving in collecting payment. You can't afford to ignore this part of your business.
5. Plan for Retirement
Retirement may be a long way off, but it's never too early to start putting money in tax-advantaged retirement accounts. Look into a Roth or traditional IRA, as well as a solo 401(k), as options for your future financial security.
Most importantly, advises financial planner Sophia Bera for Daily Finance, stick to the fundamentals: "Invest in your retirement; pay yourself first; hire help when you need it and start by keeping the business lean so that you can become profitable as soon as possible."
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