We can mention several attributes that might influence the success of a business. However, none of them is more vital than financial management. You may have chosen to build a restaurant because you enjoy cooking or made your mind to set up a flashy photography studio because you are excellent behind the camera, but launching a business does not imply that you will become an accountant. So how do you amp up this all-important skill? Well, the following are some of the tried and trusted tips that can enable you to handle finances like a pro:
Manually paying bills consumes time to spend on things like product development and customer acquisition. There is also the risk of missing deadlines and being penalized for being late. Therefore, you should leverage online banking and automate your payments to improve the overall bill payment process. Within little to no time, you will observe an improvement in productivity and fewer penalties.
Tax regulations are quite complex. It will be very tough for you to get your head around them as an outsider. Accountants are trusted specialists for the job because they have an in-depth understanding of tax-centric laws. Getting in touch with an accountant will keep hefty penalties at bay and ensure peace of mind.
With that said, all accountants are not equal. You should consider hiring a professional who has worked in a similar niche as yours. Besides, the accountant must have at least a master’s degree. As the trend of earning a finance degree is increasing, you will not have any difficulty finding a qualified accountant.
- Revisit The Business Structure
The majority of entrepreneurs begin as sole proprietors. However, you should consider changing your business structure to an LLC (Limited Liability Corporation) when your company expands. Depending on your needs, you might also explore other structures such as C-Corporation or S-Corporation.
In the event of a liability issue, this provides for the complete separation of your business money and personal assets. For example, suppose a consumer files a lawsuit against you. These business arrangements might offer you some protection for your personal assets.
- Improve Your Credit Score
Different financial institutions, partners, and suppliers tap into credit scores to assess a company’s creditworthiness. It provides them with a clear picture of whether or not you will be able to repay your debt. A good credit score aids in the establishment of a company’s goodwill. Contrary to the common assumption, establishing a solid business credit score is not a mounting task. Taking the simple steps listed below will get the job done:
- Maintain a healthy credit utilization ratio: Keep an eye on your credit utilization ratios because this is a key criterion credit reporting organizations consider when determining your score. Experts recommend keeping your credit utilization ratio around 30 percent; anything higher than that might suggest that your company is having trouble paying its payments.
- Make timely payments to creditors: Although every credit bureau calculates company credit scores slightly differently, they all pay attention to your payment history. Therefore, be sure to make your payments within the due deadline to maintain a decent credit score.
- Rectify errors in the credit report: It is critical to evaluate your company’s credit history to ensure that the information is up to date. In case you notice inaccurate information, address it at your earliest.
- Request suppliers to report payments: Since it is not a requirement, many B2B suppliers do not submit credit history. So if you have a good payment history with specific suppliers or vendors, ask them to make reports or boost the number of positive payments on your file. This may aid in the improvement of your company’s credit score.
- Separate Your Personal And Business Finances
There are multiple reasons why one should not mix business and personal finances. Using a separate business account makes it much easier for starters to keep track of business spending and deductions for tax purposes. Apart from that, keeping your personal and corporate finances separate protects you from personal liability.
While you may be required to sign personal guarantees for loans and credit lines when your company is new, and your credit rating is low, your goal should be to transfer these responsibilities to your company as soon as feasible.
- Consider Renting Business Equipment
Starting a business is difficult, and perhaps one of the most difficult decisions you will have to make is whether to lease or buy equipment for your company. However, you cannot dispute that renting equipment rather than buying it will save you money and allow you to save for your future projects. The money saved on investments might be put to better use in other important areas of the firm.
- Understand Your Financing Options
Just like most companies, you might also need to apply for a business loan at some point. There are specific eligibility requirements for each type of loan. As a result, you should have a clear idea about what types of loans are available and what measures you can take to qualify for them. It will enable you to better organize your business finances from the start and have a financial objective to strive toward as you grow.
- Keep An Eye On Your Spending
Are you aware of how much money you spend on a daily, weekly, or monthly basis? If you do not keep track of your expenditures, you will be overwhelmed with a slew of bills. Smart entrepreneurs maintain several accounts, including a saving, checking, and credit card account. Knowing exactly how much you withdraw from each account will make your job a lot easier.
- Set Up A Business Emergency Fund
What a personal emergency account is to your personal life, a corporate emergency account is to your business. It can act as a backup for you in the aftermath of unforeseen setbacks. Covering payroll during a dull season and making unplanned but necessary purchases are just a few examples of that.
Whether you are just starting or have been in business for a while, managing business finances holds the key to long-term growth. Still, surprisingly, many businesses struggle to stay afloat in this area. But the good news is that if you implement the tactics listed above, you can manage your business finances effectively.