Starting a small business is always an issue of concern, especially when it comes to financial management. Statistics show that most of the small businesses collapse within the first five years of operation due to poor financial strategies. If you are starting a small company, you need to make sure that you observe your finances and avoid unprecedented business challenges. Here are some financial strategies you need to incorporate to achieve financial success.
1. Professional Debt Management
The success of your small business depends on how fast you will be getting your money back after selling goods to your customers on credit. To achieve that, you need to ensure that you have a comprehensive debtor management strategy that outlines how long all those should pay for all the goods bought on credit. Your employees should be briefed on the debt management strategy your company has incorporated to prevent customers from staying for an extended period before clearing their debts.
2. Automating Financial Management
One of the reasons why small businesses find it hard to manage their finances is because they continue to do it manually. A recent survey indicated that more than half of small business organizations had not automated their financial management practices. Automation is an essential financial management strategy, especially in the eradication of human error during entry. You should make sure that you automate your profit reporting, expense reporting, and tax expenses using cloud-based financial management software.
3. Innovative Billing System
Every business has several clients who are very poor in paying for the goods they have already purchased. This is very unhealthy for your business, as you would want to have your products paid immediately. You can have an innovative billing system that encourages chronic customers to pay within two days at a discount. You can also institute late penalties to the late paying customers so that you can push them to have them within a short period.
4. Spread Tax Payments
Taxes are some of the significant business expenses that you will have to pay annually. Sometimes tax expenses are so huge to the extent that they can inflict liquidity issues in your business. Instead of paying your tax expenses annually, you can consider spreading tax expenses and treating them as monthly expenses. Spreading tax expenses prevents a situation where you have to deal with huge costs and thereby to prevent your business from withdrawing huge amounts of money on a single transaction.
5. Conduct Financial Forecasts
Financial forecasting is a critical aspect of a small business as it helps in ensuring that the company is not caught unaware of drastic financial changes. Forecasting helps in predicting future revenues and thereby determining the amount of money the company will have to work with. Additionally, financial forecasting is essential in predicting future fiscal deficits. Without a clear financial forecasting strategy, you will not manage the finances of your business effectively. You need to understand whether you will have surplus or deficits in the future so that you can plan accordingly.
6. Minimize Overhead Costs
Most of the small businesses operate with many overhead expenses that do no good for their financial health. Some cloud-based software is essential to the success of the company, but you need to evaluate their return on investment. If you have subscribed to any software that is not generating revenues, you need to cut down that subscription. There are thousands of free online software that you can use to handle various business operations instead of subscribing to software that is not generating revenues in your business.
7. Create a Business Emergency Fund
Market uncertainties and changing customer behaviour can significantly interfere with cash reserves. To avoid financial distress in such unforeseen circumstances, it is crucial to have emergency funds that can sustain a business for more than three months. Trends have shown that most of the small companies have cash reserves that cannot sustain a company for more than one month, which is a huge risk. This could explain why most of the small businesses fail after being exposed to drastic changes in revenues.
8. Adhere to Strict Financial Obligations
Adhering to strict financial management is a recipe for advanced financial management in any business. Some rules and regulations govern how specific financial statement should be prepared. For example, it is vital to prepare payroll in the United States to adhere to the Fair Labor Standard Acts. You should also make sure that you pay your employees the agreed amount and also on time. Avoid simple disputes that could have huge financial implications for your business.
These are some of the financial aspects that you need to put into considerations if you want to record success. Many business owners concentrate on marketing their products and services and neglect the management of business finances. If you want your business to expand and achieve its objectives, you have to incorporate strategic financial management practices.