Owning a small business comes with satisfying rewards, like being your own boss. With the benefits comes the responsibility of money management. From tracking cash flow to tax prep, these best practices can greatly impact the success and sustainability of your business.
- Build a Budget: To lessen the risk of overspending, map out your expenses. This includes fixed costs like rent and utilities, variable expenses such as supplies, and one-time expenditures like equipment purchases. Remember to account for taxes and an emergency fund for the unexpected (we’ll get to that!).
Unsure where to start? Expense management software can do the heavy lifting to ensure your budgeting efforts are precise and strategic. Gain insight into your business’ financial health and use features to do the following.
- Separate Accounts: Operating from your personal account is a quick route to financial instability. Open separate bank accounts and credit cards for your business to stay organized. This will simplify accounting and tax preparation and safeguard your personal assets if you’re faced with legal issues or bankruptcy. Make it a habit to only use business funds for business expenses.
- Manage Debt Wisely: Applying for loans may be necessary to finance operations or expansion. However high-interest rates can erode profits and damage your credit. Evaluate financing options thoughtfully, choosing the most cost-effective solution that meets your needs. Aim to keep debt levels manageable (to avoid over-leveraging your business) and consider debt consolidation to streamline repayment.
- Plan for Emergencies: Recessions happen. Vendors change. Supply costs increase. Whatever the event, building an emergency fund provides a buffer during difficult times and allows you to weather temporary setbacks. A good goal is to set aside three to six months' worth of operating expenses in a dedicated savings account. Treat your emergency fund as a non-negotiable expense and grow it over time.
- Evaluate your Finances Regularly: Ongoing financial check-ins will help you refine your budget as your business evolves. In addition to the money management practices listed above, consider enlisting professional guidance from financial advisors or accountants. These professionals can identify potential pitfalls and provide recommendations that align with your goals.
Pro Tip: The financial health of your business begins with your personal financial health. Our trusted partners at GreenPath Financial Wellness can help you eliminate debt and review your credit report. They can also show you how to take advantage of free financial courses on your preferred schedule.
(This content does not constitute tax or financial advice. It is advisable to seek guidance from a licensed professional tailored to your individual circumstances.)
