Owning your own business is extremely rewarding. You are in charge – bringing your ideas to life each day and paving your own path for the future. Business owners are a big part of the American small business revolution, yet studies show that about half of them shut down after the first five years. According to experts, one of the top reasons that these companies don’t survive is for financial reasons. Either they aren’t making enough profits to stay afloat, or lack financial funding.
Do you have challenges with the financial side of running your small business? Here are some tips to help you get your business back on track.
Tip #1: Keep Business And Personal Funds Separate
Treat your business as an entity, not an extension of your personal funds. A common mistake that some business owners make is drawing funds from their business for various personal reasons. Instead, you should separate your business account from your personal account. Determine a salary that you can afford and pay it to yourself. Then use those funds for any personal expenses. Getting into this habit will help to hinder the temptation to tamper with business funds.
Tip #2: Utilize Small Business Financial Tools
If your background is not in business or accounting, you may not even realize all the great tools that are available to you and your business. Sadly, 82 percent of small businesses fail because of a cash flow problem. However, digital technology is always evolving and there are many different platforms that could help you manage your operations. Use tools such as accounting software, financial management courses, budgeting tools, cash flow analysis, and a payroll management system (if you have employees).
Tip #3: Be Frugal
Successful businesses are mindful of how much they spend and what they are spending it on. They try to eliminate waste wherever possible. Waste can take many forms. You could be printing excessively, using up paper and toner when documents could easily be viewed digitally. Or, your employees may be using outdated equipment and processes that also cause waste. Be sure to regularly evaluate your finances and your processes and look for ways to be more frugal.
Tip #4: Monitor Your Accounting System
Having some form of accounting system is critical to any small business. If you have a business background, this may sound like a no-brainer, but if your entrepreneurship is the result of a talent or passion that you have (completely unrelated to accounting), this could sound foreign to you. If this is the case, it is a good idea to hire or outsource your accounting. However, you need to stay involved in it. Freedom Debt Relief recommends that you stay a part of the process rather than waiting for a financial statement each month. Monitoring your accounting system keeps you aware of what is going on in your business and it could help protect you from avoidable mistakes or fraudulent activity.
Staying on top of your finances could help your business be one of the 50 percent that makes it beyond the first five years and on to future success.