Running a business is more than servicing your patients or customers. Business owner-entrepreneurs must handle all aspects including cash flow, growth, bookkeeping, credit and more. And even if you’ve hired the best of the best to do the day-to-day business finance tasks, business owners must be engaged and active in managing these critical aspects so that when you decide to grow, sell, or retire you can. Here are six important business finance tips to live by that will ensure your profitability and longevity in whatever field you’re in.
- Plan for Seasonal Cash Flow Changes
Most businesses, even dentists, doctors and the like, deal with seasonality to the ebb and flow of their business. The problem is, without proper planning and good budgeting for expenses, employee payroll, overhead, and inventory, you can find yourself in a big shortfall at certain times of the year. If you break down your expenses into categories and stick to a monthly budget that scales based on customer influx and the businesses’ needs you can make it through the thinnest of slow times with ease.
- Don’t Procrastinate
One of the biggest mistakes new entrepreneurs make is that they put off their bookkeeping needs to deal with ‘higher’ priorities or ‘fires’ at the time. If you aren’t financially-minded, programs such as QuickBooks can make small-business accounting seem like rocket science, especially if all you need to do is send out a few invoices and track a few expenses. The problem is, if you put off your accounting work, it doesn’t go away and in fact, it just gets bigger, and more complicated as expenses stack up. Avoid being stuck with an overwhelming bookkeeping nightmare and have time set aside to look at and update your records each week – or – hire someone who will handle this for you and check in on everything once per month to plan, set aside funds for growth or expansion, new equipment, etc.
- Don’t Forget Your Time is Money
Many small business owners are so personally financially invested in their business that they discount the 80+ hour weeks they put in. But consider how much your time is worth, by the hour or week like any other employee, before determining your profitability or loss. If you are spending too much time working, not only will you burn out and lose the spirit of the dream to grow the business, but you’ll ultimately damage your health and relationships in the process.
While this all-consuming time investment is fine for short periods, especially for start-ups within the first 18-months or so, this shouldn’t be a part of your long-term financial calculations. It’s simply not sustainable. If your company is only in the black because you’re working yourself to death, your numbers are going to take a major turn once you scale back. So, make sure that your labor costs are fully accounted for because undervaluing your time investment in your business hurts everyone involved.
- Hiring the Right Pros Saves Money
An important rule for all business owner is to focus on doing what you do and hire professionals to handle the aspects of the business you don’t specialize in. If accounting isn’t your strong suit, you’ll save 10x what you spend come tax time if your books are clean, and your returns are easy to prepare. You’ll also maximize your write-offs with better record keeping and get a bigger tax return to reinvest in the business if you hire the right professional that understands your business and needs.
One issue we see far too much is startup owners, particularly software-as-a-service providers, believe that they need to create everything from scratch. We get it. If you’ve already got a coder on your team, it can be seriously tempting to have them build internally rather than investing in existing solutions. But when it comes to something as complex and potentially expensive as payments integrations – software providers are wise to partner with a pro. We have the infrastructure to customize your payments integration and the batch onboarding capability to get 100% user adoption so why torture your team? Learn more about our custom payments integrations at www.payfacinabox.com.
- Ask for Deals
Most start-ups or even expanding businesses can find deals and discounts to establish relationships with vendors. Your vendors are invested in your success, so they are likely to give you a break. Whether you need inventory, equipment, office supplies or more if you’re seriously tight on available funds, but you want to take advantage of existing solutions, try emailing the founder and asking for a discount. It won’t work in every case, but you’ll be surprised by how often you can get free or discounted stuff just by asking. You can also try getting items for giveaways by offering to cross-promote another brand. This is a win-win, you get items to give away, and the other brand gets their logo and number out there.
- Understand How Your Business Credit Score Works
Your business credit score reflects your company's creditworthiness and ranges from 0 to 300. According to Creditera CEO Levi King, your business credit score is important for five main reasons:
- It impacts your ability to get approved for business financing as well as obtain favorable interest rates, particularly from a traditional bank or credit union.
- Commercial partners, like suppliers and vendors, use it to determine extensions of trade credit. If your business credit score is low, you might not be able to get the inventory you need for your business.
- Insurance companies use business credit to determine insurance rates for your business.
- Large corporations and government contracts have minimum business credit score requirements you must meet before doing business with them.
- A strong business credit score protects your personal credit by allowing you to rely on your business assets to carry the load of financing the business. This eliminates the risk of using your credit on business and growth opportunities, giving your business access to around 10 to 100 times more credit than you would be able to obtain as a consumer.
To build or raise your credit score, you need to understand the basic components used to calculate a business credit score. These include credit utilization ratio, payment history, length of credit history, outstanding debts, public records, such as bankruptcies, liens and judgments, company size and, industry risk.
Tips to build and maintain a strong business credit score:
- Never miss a payment. Pay all business-related bills on time or earlier if you can.
- Use business credit cards to make purchases instead of cash, checks or debit cards.
- Maintain a low credit-utilization ratio. Credit utilization is the percentage of the available credit you are using. Consider opening multiple credit accounts such as business credit cards, trade lines and loans, and use only 25 percent of your available credit (note: Never open a line of credit if not necessary).
- Regularly monitor your business reports and scores by registering with one of the four credit bureaus mentioned above. Checking your business reports for errors is crucial. It's common to find data errors on business reports that can impact your score. Using a monitoring service to receive 24/7 alerts will ensure you're protected if anything questionable appears on your report.
What many business owners don’t know is that your personal credit will play a larger role in your ability to get business financing because new businesses have yet to establish a credit history that vendors can use to determine their level of comfort in working with you. Be sure to check your personal credit score using a free service, to make sure your credit is in good standing before applying for a new business loan. And, take our business credit quiz to test your credit score knowledge.