46% of entrepreneurs don’t have any form of business education. These entrepreneurs struggle to formulate sound business financial plans. They unintentionally do things that sabotage their businesses’ growth. As one of these entrepreneurs, you should look for ways to fill this knowledge gap. To help you out, here are seven financial tips every business owner should know.
1. Separate Personal and Business Finances
As a small business owner, you don’t see the need to have two different bank accounts. You claim you can separate the personal and business finances on paper. Unfortunately, having a single bank account will lead to business financial woes.
You’re going to use business funds for personal stuff and struggle to make finances balance.
To simplify money management:
- Open a separate bank account for your business
- Instruct your customers to pay for products/services your business sells via this account
- Avoid withdrawing money from this bank account for personal expenses
You want your business to stand as an independent entity.
2. Learn to Create a Periodic Business Budget and Stick to It
Most new business owners adopt a “wing it” approach when dealing with expenses and revenues. They have no idea how much money they’ll spend on a given expense. And that’s why their businesses constantly face money problems.
To counter this challenge, learn how to create a business budget. The idea is to allocate money to things that smoothen business operations. Also, a budget will help you track business expenses, thereby enhancing accountability.
3. Know When to Seek Professional Business Financial Advice
As a new entrepreneur, you assume that you’ve to figure out everything yourself. You experiment with different business management practices hoping one will work. Sadly, you make errors that hinder business growth and threaten its survival.
Instead of this trial and error approach, know when to seek professional financial advice. You want to find experts who educate you on things such as managing business credit. Also, seek advice on common financial problems small businesses face and how to overcome them.
The great thing is that you’ll find many affordable business financial experts using the internet. Besides, leverage online entrepreneurs’ forums to get financial tips from other business owners.
4. Always Track Your Working Capital
A business can report profits yet go under due to working capital problems. Working capital is the money used for the day to day business operations. It’s current assets (cash, account receivables/unpaid invoices, and stock) minus current liabilities (account payable and debts).
Your business should strive to have positive working capital as this means you’ve enough money to cater to recurring expenses. To achieve this goal, learn how to effectively manage your business’s cash flow. You want to avoid cash flow problems that disrupt operations.
Here are some of the things you can do to improve your business’s working capital:
• Cut all unnecessary spending
• Give debtors incentives to pay you sooner
• Request your creditors for longer repayment periods
• Examine your company’s cash flow patterns
• Explore cash flow loans
You want to adopt a proactive working capital management approach to streamline operations.
5. Choose the Right Business Investors
When facing business financial woes, it’s tempting to take money from anyone. The problem is that some investors are the wrong fit for your business. Some will use their investment to strong-arm you into doing things you don’t like.
Others will insist on a high return which your business can’t afford.
To avoid all these problems, take time to screen investors to find the right ones. You want to partner with people who share your passion for the business. On top of funding the business, you may also want to find investors who are experienced within your business area and can advise you on how to run it.
6. Plow Back Profits
Once your business starts generating profits, it’s tempting to withdraw all of them. You argue you’ve waited for so long, and you deserve to be rewarded. And you’re right, yet to grow your business, you need to plow back the profits.
Here are some of the ways you can reinvest the profits:
• Hire more employees and expand your workforce
• Invest in new technology that gives you an edge over the competitors
• Increase your sales and marketing budget
• Open another business branch
• Start a business emergency fund
Your goal is to invest in things that give your business stability and stimulate growth. You want to forgo current profits with hopes of reaping huge ones in the future.
7. Protect Your Enterprise Against Fraud
Cyberattacks cost companies $200,000 on average, putting many of them out of business. That’s why you should look for ways to curb these risks.
Here are some of the measures you can take to prevent cyberattacks:
• Train your staff on modern cybersecurity practices
• Invest in data encryption
• Only use secure devices and networks
• Undertake systems audit regularly to test for weakness
• Develop policies on how to handle data breaches to cut losses
• Buy cybersecurity insurance
• Consider hiring a cybersecurity consultant
Implementing these measures will help you keep up with the latest technologies without compromising cybersecurity. You want to accept electronic payments from your customers. Also, you should take advantage of different e-commerce platforms to expand your business’s reach.
Boost Business Growth by Adopting Practical Financial Tips
To stimulate business growth, you need to learn how to handle its finances effectively. Rely on the above financial tips to give your enterprise an edge. The idea is to improve your business’s working capital to give it stability.
Also, know when to seek professional business financial advice. Finally, be careful when choosing investors, as they’ll impact the business’s direction.
Please check out our Business and Finance sections for more incredible financial tips.