Small businesses face new challenges all the time. But you’re majorly shooting yourself in the foot if you mismanage your finances.
A solid financial plan gives a SMB a firm, steady foundation from which to build. It’s not simply a case of having enough money in the bank – it’s about how you manage that money. To help, it’s a good idea to have a plan in place.
In this guide, we’ll be taking a look at how Australian SMB’s can manage their finances.
Track Your Expenses To Stay Out Of Debt
It sounds obvious that no small business should want to go into debt. But many small businesses – especially those that are new and inexperienced – don’t do the right things in order to stay out of debt.
Debt is a major hassle that can be hard to get out of once you’re in it. It can cause a major financial headache for you and your business. Worse still, it jeopardizes the livelihood of your employees.
The simplest way to stay out of debt is to track your expenses from the start. This means all your expenses, including hidden transaction fees on debit cards. You should also make sure to store your receipts properly and keep a spreadsheet as this will enable you to see an overview of your expenses at a glance.
It’s also a good idea to make use of cloud accounting software, as well as IT software to ensure that you experience as little downtime as possible.
Plan Ahead For Taxes
No one likes paying taxes, but you will save yourself a potential migraine if you plan ahead. Because the rules are simple: Whatever you owe, you must pay. And if tax season arrives and you haven’t got the money to cover it, your business will suffer.
Instead of writing off a few expenses in the hope that they’ll cover it, put money aside for your taxes as soon as you can.
How much should you set aside? There isn’t really any one-size-fits-all amount, but it’s a good idea to start with 35% of your income. That way, you can be sure that you won’t be hit by any nasty surprises.
Keep On Top Of Invoices
This one all depends, of course, on the type of business you run. If you’re selling services and have to reel off invoices, it can be easy to fall behind with them, and when this happens, clients invariably won’t pay on time. When clients don’t pay on time, your cash flow could be affected.
When cash flow becomes an issue, your whole business is compromised and this can cause major issues, even the potential closure of certain businesses.
There are two things to bear in mind here. The first is to create a clear payment policy that will allow you to issue payments on time. The second is to use invoice software, such as QuickBooks.
With that all said, there will still be times when clients simply don’t pay on time. When this happens, make sure you follow up promptly.
Create an Emergency Fund
All small businesses should have an emergency fund. Why? Because, while it’s important to budget and save and do the right things, it’s always a smart idea to have an emergency fund just in case things go devastatingly wrong.
Small businesses need to plan for the worst. With an emergency fund, they can continue to operate even when sales are on a lull. This is because an emergency fund can help to ensure there are no cash flow issues.
If you ever need to dip into your emergency fund, make sure you quickly restore it once your business is back on track.
As you go about building an emergency fund, try to set aside a minimum of 10% of your income each month for it.
Consider Taking Out a Loan
Lastly, and following on from the above point, a small business shouldn’t be afraid of loans. While loans can often sound frightening, they can be very beneficial for the business in getting ahead!
In fact, a loan can bail you out of a tough financial situation when even your emergency funds aren’t able to cover you. Moreover, a loan can keep your cash flow going, and it can also help you invest in new equipment that allows you to grow your business.
Finances can be a boring or overwhelming topic. But they’re essential to the lifeblood of your business.
Use the tips in this article to avoid mismanaging your SMB finances. Don’t forget to make use of tools as well, as they will make your life a whole lot easier.