small business financing

Congratulations! You have just accomplished the dream of becoming your own boss. You’ve been busy gathering information, building strategies, and securing funds, and now you want to expand your company and take it to the new height of success.

A new business means following your passion, helping people & economy, living a more flexible lifestyle, making more money, and feeling pride in building something of your own. It could also mean wealth untold, but only if you’re smart with your money. The majority of new businesses fail during the first year because of their poor financial management and control, but your situation doesn’t have to be that way.

Financial success of your small business is possible, you’ll need to be extremely proactive in your financial choices. You’ll have to keep the financial aspect of your business a priority and avoid some of the common financial mistakes. Here are a few financial considerations that will significantly increase your chances of nurturing a successful small business.

Cash Flow Management and Forecast is Crucial  

There are several reasons for small business failure, but a lack of understanding of cash flow and poor cash management is the most frequent one. According to the US Bank study, a whopping 82% of businesses that failed cited cash flow problems as a factor in their failure. Thus managing your cash flow becomes more vital. It will give a clear picture of your business from the working capital perspective and gives an idea of how much cash flow you have for coming months.

No matter how incredible your business idea might be, if you won’t manage your money within the first year, you will most likely not survive past the second year. Here are some smart tips to solve your cash flow crisis and drive your company’s performance, growth, and success.

  • Use a cash flow management and forecasting software, like Smansha, to get a picture of your past, present and future cash flow.
  • Improve your accounts receivable collection.
  • Delay your payables.
  • Consider adequate small business financing.
  • Establish a budget and stick to it.

Track and Monitor Spending 

From research expenses to borrowing costs, license & permit fees, technological expenses, equipment & supplies, advertising & promotion, and employee wages, there are several start-up costs incurred during the process of creating a new business. Identifying your business expenditure throughout the month will not only help you with cash flow management but also identify serious problems in how you manage your money.

It’s important to know where your money is going as it helps you recognize both positive and negative spending behaviors. Once you know where you’re spending your money, you can easily meet your financial objectives. Whether you want to build an emergency fund, buy a real estate, pay down debt or save for equipment, you’re more likely to achieve these goals if you track your spending to ensure your spending matches your priorities.

Here are some tips for tracking your business expenses:

  • Write down every penny you spend and always save receipts.
  • Eliminate non-essential expenditure.
  • Use accounting software such as SlickPieQuickBooks or  Xero.
  • Keep personal and business expenses separate.
  • Know which expenses are tax-deductible.
  • Hire an accountant or bookkeeper.

Maintain Cash Reserves

A recent study reveals that Just 40 percent of Americans could pay an unexpected $1,000 expense. What about your small business? Do you have enough savings to manage an abrupt cost? If not, you have to give your cash reserve some love.

You’ll want to have an emergency fund to dip into if your initial savings dries up. Though you can rely on small business financing and lines of credit, it’s often better to have some liquid assets. You can use a reserve to cover short-term expenses that are unplanned or unexpected. Saving money for your reserve can help your new business avoid paying interest when making big purchases. Besides, it can help cover slow sales months, big or new purchases, three-paycheck months, and growth opportunities.

You need to open a new bank account to start your cash reserve, and it should be separate from your personal account. You should keep reserves enough to meet at least three to six months of your business expense.

Here are some of the many tips for maintaining cash reserves:

  • Automate your savings.
  • Keep at least 10% of annualize revenue in the bank.
  • Save your tax refund.
  • Use cashback credit cards.
  • Save when the going is good.
  • Cut back on business trips.
  • Use cash flow management and forecasting.
  • Plan for the worst-case scenarios.

Invest Money Wisely

If you want to take your small business to new heights, you need to do more than simply earn money. Spending money is the best way to make money in business, but only if you’re investing it appropriately. Determining what, where, when, and how much to invest help you achieve your short and long-term financial goals.

Wisely investing money has numerous benefits. It will help you build wealth, stay ahead of the inflation, achieve tax benefits, gain future financial security, save for emergencies, and meet various other financial goals. Before investing your money, you need to set your business priorities – what does your new venture need rather than what you need it to have? For example, you can save on the rental cost by investing in a small office space. However, it’s not right for every small business, it’s imperative to plan accordingly.

Final Thoughts

There are various benefits associated with a new small business. If you plan strategically, manage your cash and make the most of every opportunity to reduce expenses, you can take your startup to the next level.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper, or financial professional.

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