Even for businesses that are not heavily profitable, owning a business can be incredibly rewarding emotionally. However, there’s something that drastically affects whether or not a small business can succeed in the long-run: finances.
Whether you have a business or hoping to start one soon, the following financial tips will help you succeed in business in the long term.
1. Keep track of all expenses.
While it seems common sense for any business owner, it’s still vital to reiterate the importance of keeping track of every financial move you make. Recording your business’ expenses help you understand what your operating expense ratio is.
To calculate your operating expense, divide your expenses by the net revenue your business brings in, then multiply by 100. An operating expense ratio of 80 is considered financially ideal.
2. Buy only what you can afford.
it’s important to not overspend on things you can’t afford at the time. In business, spending more than what you can afford for equipment, supplies, and the like may not just lead to long-term debt but potential bankruptcy and/or business closure.
The idea of “buying what you can afford” doesn’t just refer to being able to pay out of pocket for things you need but also being able to upkeep repayments on loans and expenses.
3. Lease equipment and machinery
Especially for newer businesses, paying for equipment and machinery, and not to mention the other expenses that come with opening a business, can add up quickly.
Leasing equipment can easily help you save a lot of money and being able to reduce the debt your business builds up early on, can ease your startup jitters and hopefully get you on the right foot financially for your business.
4. Don’t expand your business too quickly
Do not be in too much haste to expand your business. Even if you and your business are ready for expansion, there is still such a thing as too much expansion. For instance, a successful restaurant may go from one location to three locations in a year, only to find that the other two locations were impulsive decisions.
Although you might have the funds and be eager to expand your business considering the many opportunities, expansion should be a careful decision. Not only should you be financially prepared for this expansion, but you should also consider what risks the expansion may hold and whether or not you and your business are ready for that.
In order to have a thriving business, proper finances must be in order. Taking charge of your finances as a business owner is vital, although hectic at times, the long-term benefits are certainly worth the extra work and effort.