If you have your own business or plan to start one, you bring certain skills and experience to the table. If you own a restaurant, for example, you probably know something about food and cooking. On the other hand, you may be less skilled at managing your finances.
Many business owners are experts in their fields yet lacking in financial savvy. Not understanding how to manage your money can undermine any business. Here are some financial tips that will help you become more successful.
Learn how to use finance software.
One of the best ways to develop expertise in areas such as budgeting, accounting and taxes is to use a software application such as FreshBooks or QuickBooks. Take the time to learn how to use all the functions that apply to you. Even if you outsource tasks to a bookkeeper or accountant, you should be familiar with the financial fundamentals of your business.
Take a class.
There are many good classes, both online and in-person, that teach you the basics of small business finance. Udemy is a good place to look for free and affordable courses. It offers courses such as Business Finance: A Complete Introduction, Bookkeeping Basics and Budgeting For Business. If you prefer taking a live class, check with local community colleges, adult education centers and business associations such as the chamber of commerce in your area.
Build business credit.
Some small business owners make the mistake of mixing their personal and business finances. There are several advantages to creating a distinct financial identity for your business. When you create business credit, for example, you’re in a better position to obtain financing. You’re also more likely to get favorable terms from suppliers.
• Make sure you have the optimal legal setup for your business. If you’re currently a sole proprietor, consider incorporating or becoming an LLC.
• Obtain an EIN (tax identification number).
• Open a business bank account.
• Get a business credit card if you don’t yet have one.
• Apply for lines of credit with vendors, and pay bills promptly.
Create an efficient system for billing clients.
If you have a business that sends invoices for services rendered, it’s all too easy to suffer cash flow problems due to clients paying late (or not at all). While you can’t always avoid such issues, you can minimize them by having a clear and efficient billing strategy.
Send out invoices promptly, and have clear terms for when they are due, as well as penalties for late payments. You can also motivate clients to pay early by offering discounts for paying on time and perhaps additional discounts for paying early.
Calculate the ROI for advertising and marketing.
It’s important to know what kind of return you’re getting for the money you spend on advertising, marketing and promotions. With online advertising, it’s fairly easy to track analytics (such as with Facebook or Google ads).
It’s also possible to track the responses for offline ads if you take the right steps. If you’re advertising your URL, for example, you can create custom URLs for each ad. You can also create special coupons or discount codes associated with specific promotions. If you don’t track the effectiveness of your marketing, you’ll keep pouring money into unprofitable campaigns.
Don’t skimp on items essential to creating the best products and services. At the same time, make sure you’re not paying more than you need to. Even minor expenses add up over time, so it’s always useful to look for ways to cut costs.
Negotiate better terms with suppliers. You may be able to get better deals by buying in larger quantities. When investing in business-related items such as furniture, technology, decor or machinery, always do comparison shopping. Avoid items that cost more because they’re trendy, fancy or luxurious.
The only exception is if luxury is part of your brand’s image (e.g., if you run a high-end hotel or restaurant). If you work in a home office, though, you probably don’t need top-quality office furniture.
Research ways to finance your business.
If you want to grow, you may need to obtain financing. Look into as many alternatives as possible, such as:
• Business loans: The Small Business Administration (SBA) is a good place to start researching. As noted, establishing business credit will help you with financing.
• Crowdfunding: This works best if you have an innovative business model and/or an existing social network (either people you know offline or via social media, or an email list).
• Invoice factoring: If you have regular customers who pay invoices, you may be eligible for this type of financing. When you factor your invoices, you get paid upfront in exchange for a fee. This type of financing is often good for smaller businesses without established credit because factoring companies check your clients’ credit rather than yours.
If you want to be successful in business, financial wisdom is just as important as mastering your specialty. Sadly, many talented people fail because they haven’t taken the time to learn how to manage their finances. Take the time to identify areas where you need to get up to speed and start making any necessary adjustments.