From my experience of having managed a boutique insurance firm and dealt with various types of small business owners, I saw many entrepreneurs run into financial struggles that they could have avoided if they followed some simple tips from the beginning of their operations. Here are a few things you can do right now.
1. Stay on top of your bookkeeping
Bookkeeping can be a daunting task that many new small business owners tend to neglect or overlook, especially if they have no prior business background. A lack of proper bookkeeping can become a headache during tax season or when a low-interest business loan requires well-documented financial statements.
For these reasons, I highly recommend hiring an accountant for smoother and more efficient operations. You may think you can’t afford one, but it’s important to remember that you don’t need to employ them full-time. Many independent accountants offer hourly or per job rates. It’s especially beneficial to get professional help during your planning process if you have a retail business that often has high volume of transactions every day. An accountant can help you make financial projections and offer advice on how to keep track of daily financial activities, which might include choosing the best accounting software for your specific industry.
Even if you think your business is too small to hire someone, you should still consider paying for accounting software. Some noteworthy applications for small to medium-sized businesses are QuickBooks, FreshBooks, and Zoho Books. Any of these can help you create and keep track of customer invoices, pay bills, connect to bank/credit card accounts, and prepare key financial statements and reports. Having a clearer picture of your cash flow will help you see problematic spending areas that could be fine-tuned timely and accordingly.
2. Do research to keep costs minimal
A common mistake of many inexperienced entrepreneurs is premature overspending. I would advise not making any large purchases before analyzing the values that the product or service will bring to your business. It’s a good practice to research all your options before you make your decision.
For example, when choosing an office space, ask yourself questions: How often will you be meeting with clients? Will the meetings be in your office? Can you meet them somewhere else? These are only a few questions you should consider.
I have an accountant friend who has had a home office for the past two years. He decided not to rent an office space after realizing his clients preferred to have him work at their offices or from home. He also realized that most of his clients did not mind having their business meetings at coffee shops or restaurants. This helped my friend save money on rent and maximize his profits. The key is to distribute your limited beginning capital wisely. Try not to overspend on early marketing materials, such as websites, business cards, or advertising before you actually have revenue.
3. Prepare capital for emergencies or growth opportunities
Studies have shown that most small businesses are not financially prepared for unexpected opportunities or emergencies. There are a few ways to prevent financial blockage:
- Set up a business saving account. It is suggested that you start by putting 10% of your profit into the savings account and gradually cut back, once you have enough cushion. The funds from your business saving account can be extremely useful for tax payments or unexpected expenses. And as an added benefit you earn some interest!
- Make sure you build up business credit to be “funding ready.” It’s important that you develop a strong business credit profile in order to make the funding process easier. You can learn some tips on how to develop it here.
- Have access to enough revolving credit even if you don’t use it.. One of my friends used to joke, “When you don’t need it, everyone wants to offer it to you. But when you do, no one does.” I find this to be particularly true when it comes to lending. Low interest lenders only welcome you when they deem you as low risk and turn their backs when your business shows signs of trouble. Having enough revolving credit in advance can come to your rescue when you need it most and help you avoid talking to the “loan sharks.”
Are you a business owner looking to maximize your revolving credit? Let us help you!
