How To Avoid Financial Issues As A Small BusinessWritten by InvoiceBerry Team on November 18, 2019
As a small business, you likely face many obstacles each day. These obstacles might require you to make challenging decisions directly impacting the future success of your company. Sometimes, the daily pressure to stay on top of business-related responsibilities is tough— both customer-facing and internal operations and communications. In order to keep propelling your business forward, there must be intentionality behind every action that you take.
Successful business intentions begin with a financial plan. So, to ensure your small business is a success, make sure you can back it up financially. Understanding that money is important is just not enough; there needs to be actionable steps in place. Many small businesses don’t even make it past the first few years because they never had a backup plan to turn to when their financial plans fail. Financial trouble can be extremely scary and unsettling for any small business owner.
By taking the necessary steps to ensure your small business has the tools it needs to handle financial instability, you can avoid many issues and added stress. Following some of these provided suggestions can truly save you in a time of crisis and keep your small business from folding as many others have done before.
Don’t impulse spend
Owning a small business can be exciting, empowering and nerve-racking all at the same time. Your emotions are much more powerful than you might realize, and they can be heavily tied to the decisions that you are making for your business. Your judgment can be easily skewed when you’re working off emotion and if you’re already a risk-taker, this could get you into some real financial trouble. Making purchase decisions for a business is not a task that should be taken lightly and acting on an impulse will only cost you.
An important practice that your small business should implement is dedicating time to differentiate the needs of the business versus the wants. Layout everything that your company absolutely cannot function without and map out each cost. Include a list of repair costs in case any equipment breaks or requires replacement. It’s recommended that you have funds allocated to keep operations running smoothly at all times and have enough set aside to make last-minute repairs.
If you have this covered, great! You can now think about things you want to purchase for your business that would make operations more convenient and enjoyable. This is the space to consider any employee suggestions or requests that can improve their daily work or make certain tasks easier.
- Hold an internal company meeting to determine business needs vs. wants
- Keep your eyes on the bigger picture, each expense must have a cost-benefit
- Have someone to run all purchases by to avoid making emotional decisions
Be realistic about your budgeting and forecasting
A necessary step to move you toward better financial health is to set a budget. If your business has been running for a while and you’re trying to narrow down your budget, it’s a good idea to gather all your financial statements to have in front of you. During this process, you need to avoid overestimating or underestimating as much as possible. The more exact, the better understanding you will have of your financial status and the more confident you will be setting your budget. You would be surprised how many business owners don’t know where they stand financially. Some simply don’t want to learn or are scared to dive in until there are payment issues and by that point, it’s too late.
There are countless templates and tutorials to help you create your small business budget once you know your fixed expenses and current status. After your budget has been detailed, set aside time in the next few months to regularly revisit and review to make sure there are no large fluctuations in expenses that come up. This way when something does happen out of the norm, your preparation and organization will allow you to deal with the situation quickly and confidently.
- Use a budgeting app so you can keep track of purchases
- Give yourself permission to spend in relation to your budget
- If you don’t spend all the money you have for that month, save it!
Stay out of debt
Sounds simple, right? The best way to stay out of debt is to never put yourself in it. Obviously, no business owner wants to face financial stress and struggle to keep up with their payments. Debt is a huge problem and once you’re in it, it will feel like a losing battle to get out of. Not only are you putting yourself and company at risk, but your employees and their personal lives as well.
Stay out of debt by tracking your expenses in the first place. All your expenses should be accounted for and there should be no surprise bills at the end of the month if you are tracking accurately. There are many reasons why small business owners stay away from credit cards, interest is expensive and they are not to be used as a loan. One easy way to avoid unexpected charges is to make your purchases using a debit card with no hidden transaction fees or additional service fees since they will add up quickly if you don’t know about them.
- If you use credit, avoid overspending and only charge certain purchases
- Use a debit card with no surprise service or monthly purchase fees
- Be detailed in tracking your spending
Utilize technology and software
Consider using a project management software that will help organize your business and believe it or not, can also save you money in the long run. The more in tune your productivity is with your business goals, the better use of your money. Another helpful tool to get your bills on track is using an online accounting software that will better manage your accounts and detail your funds with minimal room for error.
The only thing worse than not understanding your finances as a business owner is to be sending out statements and bills that are incorrect. This looks unprofessional and can come across like you’re trying to rip your customers off. Working on a schedule sometimes requires tasks to be completed and bills need to be paid quicker than we anticipate, creating more room for errors. When this occurs, we make more work for ourselves and end up spending double the time extrapolating numbers when we have a million other projects that need our dedication. Educating yourself on common invoicing mistakes will help you maintain professionalism, accuracy, and save you loads of time.
- Utilize time tracking tools that come with most project management software
- Implement accounting tools as manual billing is prone to error
- Look into free online business training and tech tutorials
Purchasing the right insurance
As a small business owner, you know the importance of insurance coverage, but do you really have a handle on the best options for your company? Reviewing the various policy options available might not sound like the most thrilling task, nonetheless, it’s important to make sure your coverage aligns with your current business structure.
One common insurance mistake a business owner can make is canceling their coverage prior to having a new insurance plan set in place. It is a great idea to review and transition to better cover your company and employees, but do not neglect your timeline. Should something happen and you don’t have correct insurance coverage, you will likely be responsible for covering all costs in full. This will force you to draw from all the saving and budget planning you have been working on.
- Educate yourself about the coverage options
- Determine the types of coverage you need based on your business structure
- Regularly meet with an insurance agent to review and update
Start a safeguard cash fund
Last, but absolutely not the least, set aside an emergency fund separate from the money you already budgeted for repairs and upkeep for your business. Why is this important if you’re already budgeting and saving? You should always plan for the best but prepare for the worst. An emergency fund allows you to operate without cash flow issues kicking in, especially if your business operates as seasonal or cyclical.
Preparation allows you to make stress-free decisions throughout your life and career. Neglecting to consider an emergency is irresponsible and won’t help anyone, including yourself. Another thing to remember if you do use any or all of your emergency funds (for an emergency) you must build it back up as soon as possible. This practice is a lifelong habit that will save you in business and in your personal life.
- Start small, set aside a designated amount of cash each month
- Mockup scenarios and create emergency procedures should these ever arise
- Avoid setting up an account with fees or early withdrawal penalties
There is no easy day for a small business owner, especially for one in their early years of development. Each week presents new obstacles and decisions that weigh more heavily than the last. It is no mystery as to why so many small business startups do not even make it in today’s economy. Budget planning and preparing will allow you to navigate the unknown waters of business ownership and feel more secure that you have what it takes to get through hard times. Avoiding some of these common financial mistakes will help grow your business in ways you never expected while helping you feel confident about the choices you are making and the actions you are taking.