Mistakes are easy for small business owners to make – it's a learning experience for many after all – however there are some errors you can't afford to let slip.
If you plan on eventually selling your business, or getting investors involved, then ensuring that it is run correctly is essential, according to Entrepreneur. The challenges of a successful business continue long after it is up and running, and correctly managing your funds is vital to staying afloat in such a fragile time for any company.
In order to help you run your ventures successfully, and without monetary setbacks, here are some financial tips for managing a small business:
1. Time for the bottom line
Many business owners are competitive people, who are constantly striving for more from their entrepreneurial ventures, Garrett Gunderson, a Salt Lake City entrepreneur, explained to Forbes. Owners will consistently try to top competitors, rather than keep their own business in mind. However, just because your earnings are rising or your employment is growing doesn't mean you are making the most of your funds. Gunderson suggested that every dollar that is saved as bottom line profit will end up more valuable than top line revenue. Most individuals will try to grow their revenue without properly considering questions regarding how to streamline processes or save on taxes.
2. Prepare your own general ledger
Accounting may seem like a task better suited for a software program for some, and there is no problem with that, for the most part. The one disadvantage to employing software rather than handling you general ledger yourself is that you won't understand your business' finances as well if you utilizing an accounting program, Entrepreneur explained. Dealing with your own ledger will help you more thoroughly comprehend what you build over time.
3. Be selfish
Many owners dive into diversification much too early, Gunderson noted. Why not invest in your own business instead? Hold on to your cash, because it is the best investment you have. When funds start running low, small business owners can make some bad decisions. When you save your money, and eventually spend it on things you understand – such as your own business – then the investment will likely turn out much better than if it were spent on some outside entity.
4. Save for saving
Make sure you keep evidence of every transaction. Thorough records of all your business activity will come in handy for audits, or when potential investors begin digging into your company's financials. Additionally, keeping comprehensive records of business activity and understanding what you can and can't expense might help you reduce your taxable income.
If you're unsure of how to utilize your list of transactions in order to cut taxable income, then speak with an accountant for some financial tips.
"The other biggest mistake people make in this regard is to meet with their tax accountant just once a year," Gunderson told Forbes. "You should meet with your accountant well ahead of time, several times a year, in order to plan in advance."
5. Debt isn't the devil
Conventional thinking leads most owners to use their extra funds to pay off their highest interest costs or take care of whatever payment is due next. Gunderson believes there is a better way to approach loans and debt. He told Forbes that instead, small business owners should look at their loans and divide them by monthly payments, then invest the funds in whichever has the lowest cash flow index – credit card debt, for example.
"The number one factor for credit is your debt to income ratio," said Gunderson, according to Forbes. "If I can improve my credit by improving that ratio, I can get a better rate on every loan that I have."