Financial problems are the leading cause of small businesses closing up, and while some of these issues are out of your hands, there are steps you can take to better prepare your company for a bumpy financial future. Streamlining your cash flow management and tax processes can be done with incremental steps if you have been in business for a while, and a good financial foundation as a startup can help make it easier.
Find Professional Help
Whether you consult an accountant on a regular basis, take some courses in the subject yourself, or hire a firm for auditing services, getting professional help with your bookkeeping and tax preparation is one of the best things you can do for the financial health of your company. A Certified Public Accountant or firm can help you understand the company’s tax liabilities as well as your personal ones as a business owner, he or she can also look over your cash flow management and offer streamlining suggestions or take the bookkeeping tasks off your hands so you can focus your energy on the company’s core competencies.
When you consult an accountant for financial help with your company, one of the first things he or she will tell you is to pay yourself first. Putting your salary on the books, instead of just paying yourself sporadically, ensures that your personal finances do not suffer. Too many entrepreneurs neglect to pay themselves because they want the capital kept in the company for growth, if the business ultimately fails, however, then they have not paid themselves and may have to declare personal bankruptcy or experience other financial hardships.
Separate Business and Personal Finances
Keeping your business and personal finances separated with different bank accounts and credit lines is necessary to keep both sets healthy. Having different accounts for personal and business spending can also make tax preparations easier and avoid defaulted business transactions from draining your personal budget for living expenses. Some finances can be more difficult to separate than others, such as phone lines and utilities for home-based companies, so it is a good idea to consult an accountant for how to handle them on your books and taxes.
Invest in Growth
It is important to have a long-term plan for profits you can spend on current growth opportunities or save for future ones. Investing in technology designed to scale up as you grow, for example, is a good use for profits as the right software or hardware solutions will streamline current processes while easily adapting to the increased demand from future growth. Investments such as this can stretch your cash flow, however, so having long-term and growth needs in mind when making purchases can give you a better return.
Use Loans To Build Credit
Your business credit, and sometimes your personal score, impact your ability to take out loans when you need to purchase equipment or real estate in the future. Building credit, however, can sometimes mean taking out loans and successfully repaying them. The key is to start small and use the influx of funds to fuel the growth needed to repay them. Including plans for spending and projected profits from purchased items in your loan applications is a good way to get approved as well as track how reality lives up to your projections and expectations.
Pay Bills on Time
Paying your bills on time, every time can also help build business credit as well as good relationships with suppliers and lenders. The better these relationships are, the easier it is to get help from them when needed. For instance, if you have a history of prompt payment with a given supplier and run into an unexpected expense, they may extend you a line of credit or give you more time to pay for the next supplies order.
Another benefit to paying your bills on time is that you will not have the added expense of late fees or dealing with collections agencies. While the late fee may seem trivial when you are dealing with emergency expenses or a slowing of business, they can quickly add up and make it harder to catch up on finances. Instead of making late payments or missing them completely, it is important to call the company to see if you can push back the due date or renegotiate the payments.
Negotiate To Reduce Expenses
Before signing contracts with vendors or suppliers, it is important to examine each aspect of the deal and see if you can negotiate better terms. It is not always about the purchase price either, sometimes getting sixty days to pay an invoice instead of thirty or getting a better shipping option is better than a reduced price per item.
Financial health tips for small businesses include keeping personal and company finances as separate as possible, getting professional help with your books and paying your bills on time. Make sure you are paying yourself a salary to compensate for your hard work and invest capital with long-term growth goals in mind.