Everyday Finance Tips for Small-Business Owners
Running a successful business requires an eye for detail and attention to the numbers. Whether you’re just starting out or you have been running your business for some time, here are five essential finance tips to help ensure your company’s fiscal health.
Expect a Lag in Cash Flow
When you are starting out in business — or when your business is expanding — expect income to lag behind expenses, notes Gary W. Patterson, the FiscalDoctor® and enterprise risk management expert based in Alpharetta, Georgia. “Be sure you can live with the one-month rule,” he advises. “Your full monthly increase in costs will go at least one month longer than you think, and revenue will start at least one month later than you think.”
Keep Your Budget Accurate
A strong business requires an equally strong budget. Using the Quicken mobile app on your smartphone, together with Quicken Home and Business software, you can record and track expenses from wherever you are. Recurring income like monthly service contracts, as well as fixed expenses like your lease and insurance payments, can automatically be added to your budget each month.
Learn to Forecast
While historical data is vital for keeping your budget on a firm foundation, it’s not going to tell the whole story for this month or the months to come, especially if your business is growing. Forecast future sales and expenses based on realistic, but conservative, estimates. “The flow of cash in a business is the hardest for a good craftsman or artisan to learn, and they have to learn quickly,” says Ken Yager, president of Chicago-based Newpoint Advisors Corporation. “The only way to truly ever get a grip on it is to know your liquidity and to see that you have a way to plan your cash flow forecast, not just look at historical financial statements.”
First, look at sales prospects for the coming month or quarter to create a sales forecast. Second, make sure that you have accounted for the expenses that will come along with those sales. Using Quicken Home and Business, you can run several budget projections and find places to reduce costs using different scenarios. Variable expenses like shipping, raw materials and staffing needs are directly proportional to sales. When you create a sales forecast, you need to ensure you have sufficient funds to cover increases in these variable expenses.
Offer Incentives to Achieve Budget Targets
If you’re not a sole proprietor, it’s not just your performance that counts. The performance of your employees also directly affects whether you come within budget or not. Consider offering employees incentives like performance bonuses. If incentives are tied to your overall budget and not just to sales, employees are more likely to work harder in helping you increase revenue and eliminate unnecessary expenses.
Diversify Your Investments
As a small-business owner, it’s tempting to put all of your profit right back into the business. This, however, can be a costly mistake if your market shifts and business slows down. Instead, consider putting a percentage of your profit into mutual funds, bonds or other investments outside of your own business. And don’t forget to take advantage of tax-deductible retirement plans, like a solo 401(k) or a Simplified Employee Pension.
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