It’s no secret that financial management is a big challenge for most small business owners – and the consequences are disastrous. Of the small businesses that fail before their tenth anniversary, financial trouble is responsible for over 80 percent of those failures.
As a small business owner, it’s your responsibility to steer your enterprise in the direction of financial sustainability. However, you can’t pull this off if you aren’t implementing best financial practices.
If you’re wondering what these practices are, you’ve come to the right place. Keep reading to learn more!
1. Secure Adequate Capital Before Starting a Business
Practicing proper financial management doesn’t start after a business has opened its doors. It starts when writing the business plan. This will enable you to determine the amount of money you’ll need to start the business and keep it running until it can support itself.
A critical financial best practice at this stage is raising adequate capital. When it comes to raising capital, there are many types of startup funding. Use these to your advantage. Don’t make the mistake of starting with whatever capital you have, hoping the business will start generating revenues as soon as it opens.
Businesses can take several months or years before they start making money. What if your capital runs out before this happens? Your business will inevitably collapse unless you can raise more capital.
2. Keep Business Finances Separate
About 20 percent of business owners use the same bank account for personal and business finances. While this might make sense to you when you’re a sole proprietor, it’s not a good financial practice.
Mixing personal and business finances don’t just make it hard to keep track of the money flowing in and out of your business. It also denies your business the opportunity to build its own financial and credit history. And come tax time, you might be hard-pressed to make the most of deductions since you won’t easily tell business expenses from personal ones.
Therefore you should open a business account and develop the discipline to separate your finances from that of the business. The account should be opened where your business is based, such as a Florida business banking account if you operate there, as any other location will often not let you open an account. Don’t forget to check the business account’s perks carefully as some banks offer special deals or fee discounts depending on your business type and typical income.
3. Keep Debt Under Control
In an ideal business world, entrepreneurs wouldn’t need to take out business loans and other forms of debt to start and run their businesses. The real world is far from perfect. Loans are a common source of business funding.
There’s nothing inherently wrong with using business loans, but they can hurt your business if you don’t control your appetite for them. The interest you pay back along with the principal will eat into your margins, and defaulting on a secured loan can get your assets repossessed.
4. Hire a Bookkeeper
It’s not that most small businesses don’t have a bookkeeper. Instead, they make the hire later than they should.
Many business owners lack financial management expertise. They’re bound to make mistakes that be costly. Hiring a bookkeeper ensures the finances of your business are in qualified hands.
If your business cannot afford an in-house bookkeeper, you can outsource to bookkeeping services, which is a cheaper and more efficient option.
It is also worth it to find an accountant that is familiar with your particular field. Someone specializing in crypto accounting will have a different skill set than an accountant who mainly works on small businesses. Finding an accountant familiar with your field will pay off greatly in the long run.
Implement These Best Financial Practices in Your Small Business
Money is the lifeblood of any business. Without it, a business will wilt and die. Observing proper financial practices is key to ensuring sustainability and growth in your small business.
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