Five tips to help small businesses manage finances and eliminate debt
Many small businesses run on limited funding, so you have to be wise about where your money goes and how you grow your revenues.
That means, as a small business owner, you have to manage your finances well and eliminate debt to ensure that you drive your business toward long-term success. To help you do this effectively, we’ve prepared five tips.
1) Monitor your cash flow and expenses regularly
You must know the money that comes in and out of your small business. Monitoring your cash flow ensures that you have enough liquidity to cover expenses and helps you identify areas where you can cut costs. Also, tracking your invoices and payments saves you late fees and penalties.
Tracking your cash flow and expenses doesn’t have to be complicated or require expensive tools. Puneet Gogia, Co-Founder at Desk Mojo observes that, as a small business, you may choose to use free tools like Google office. You can start small and avoid extra expenses on software that you might not be able to utilize fully just yet.
2) Separate your personal and business money
Open an account for your small business and separate your personal money. Doing so makes it easier to track your business finances and keep your finances more organized.
You can even grow your money by choosing a high-paying savings account. You need to have business savings anyway, so why not allow it to grow by accumulating interest over time?
Moreover, having a separate business account helps you to provide proper documentation to the IRS when you need to deduct business-related expenses from your tax filings.
3) Build your business credit score
Ensure that you pay your bills on time so that over time, you build a good business credit score. This will help you secure business loans and contracts in the future.
Prioritize high-interest debts because that will save you money over the long term. For instance, if you have a car loan, you can make extra payments to pay off your debt faster. You can also explore refinancing options to lower your monthly amortization to the amount that you can keep up with.
While business credit scores are separate from personal scores, your personal debt obligations, including car loans, can impact your overall debt-to-income ratio. Lenders may consider your personal financial situation when assessing your ability to manage business debt.
4) Get insured
In running a business, there are many uncertainties and unforeseen challenges. Getting insured gives you financial protection and risk mitigation.
For instance, getting workers’ compensation insurance can protect your business from liability and lawsuits that could strain your business finances.
Max Wesman, Founder & COO of GoodHire notes that insurance coverage ensures that sudden expenses are covered, helping you avoid significant financial strain. But more importantly, it also fosters a safer work environment, which can contribute to the overall financial stability of your business.
5) Protect your brand investments
As a small business owner, you invest a significant amount of money in developing and promoting your brand. And it’s important to protect that investment. One of the things you can do is to conduct a trademark search, which helps ensure that your business name, logo, or product/service names don’t infringe on existing trademarks.
Jesse Galanis, Content Marketer at Furm explains that, if you inadvertently use a trademark that belongs to another entity, you may face legal action. Legal disputes can be expensive to resolve and may lead to fines or damages, impacting your small business finances.
If you discover that your business is infringing on an existing trademark after you’ve already established your brand, you may be forced to rebrand. You’d have to change your business name, logo, and even your products or services. That would be costly and may contribute to financial strain or result in business debt.
Manage your business finances carefully
Managing small business finances requires careful planning and strategy. You have to monitor your cash flow, separate personal and business money, build your credit score, get insured, and protect your brand investments. These tips will help you eliminate debt, ensure financial stability, and prepare your business for long-term growth and profitability.