Businesses revolve around money. When you run a small business, you really do need to focus on your finances in order to ensure that your business is profitable and that you aren’t making any significant financial errors that could wreak havoc in the long run. Just the smallest mistake could see you having to take extreme measures to keep your business afloat, or you could potentially end up having to shut everything down before things escalate and you find yourself in massive debt. So, where can you get started to keep things on track? Read on to unveil some seriously useful tips and tricks that will help to keep you out of trouble and keep your business in the black.
Setting Up a Business Bank Account
The first step towards managing your small business’ finances effectively is to make sure that you set up a business bank account. Sure, you might feel that you are organised enough with your money to keep all of your personal money and professional money together in one account. But separating your finances just makes everything easier in the long run. It will be much easier to complete your tax returns at the end of each fiscal year and you are less likely to slip up when it comes to accidentally using professional funds for personal purchases.
Managing Your Credit Score
We are all well aware of how important credit scores are for our personal financial health. This score allows credit companies and other professional lenders to determine whether you are a fit candidate to borrow money from them. It shows how reliable you are with your finances. It will reflect whether you keep up with agreed payments, whether you pay on time, whether you clear your debts in full as agreed … the better your credit score, the more likely you are to be approved on further loans, credit cards, or other financial agreements.
Now, it’s important that you also acknowledge how important a professional credit score is. It will impact you in exactly the same way. You may feel that your business will always be fine and that you will never need to borrow money, so your credit score doesn’t matter much. But you never know when you might be hit with difficulties or unexpected expenses. So, it’s always good to have the option of taking out money from professional lenders — if only as a backup or emergency situation. So, make sure your credit score is good. In order to create a good credit score, you have to engage with borrowing. This will help you to come across as a trustworthy candidate and lenders will offer you increased credit limits and larger loans as you continue to prove yourself. So, for instance, take out unsecured business loans and make sure to keep to the terms and conditions. Your score will begin to build itself up in no time!
Many business owners slip up when they spend more money than their business has available. They end up overspending and this can be the first step on a slippery slope into debt. The amount of money in your business account isn’t necessarily going to be the amount that you have available to spend as you please. You need to know the exact amount that you have available to you in order to avoid overspending in any area. So, take active steps to avoid misjudging your business’ profit and disposable cash. The easiest way to do this is by creating a budget.
Choose a period of time to deal with your finances within. You can budget on a weekly basis, a monthly basis, or an annual basis, depending on what best suits your business and your needs. Figure out exactly how much money your business has taken in this set period of time. You need to then deduct any essential outgoings, such as different taxes that you need to pay on the money you’ve earned. Once you’ve deducted this, you need to deduct other outgoings, such as commercial property rent, commercial energy bills, commercial vehicle running costs, staffing costs … anything that your business requires to keep up and running. The amount that you’re left with is your pure profit. This is the amount that you can use as you please. You could invest it. You could improve your own pay. You could offer out bonuses. Just make sure you don’t ever exceed this figure when it comes to spending in any shape or form.
These steps could significantly improve your business’ financial health. So, incorporate them into your routine as soon as possible!