Managing finances effectively is one of the most critical aspects of small business ownership for ensuring long-term success. Whether you're just starting out or are looking to expand your financial functions, understanding the nuances of business finance is essential.
At Viking Client Services, we’ve seen first-hand the challenges small businesses can face in this arena, and we’re here to provide objective, insightful advice to help your business thrive. Today, we’re sharing essential finance management tips to set your business up for growth and sustainability.
The Basics of Finance Management
Before diving into more complex financial strategies, it’s important to get the fundamentals right. These basics will provide a strong foundation for your business to grow on.
1. Separate Personal and Business Finances
One of the most common mistakes small business owners make is mixing personal and business finances. Opening a dedicated business bank account will help you manage cash flow, simplify tax preparation, and avoid potential legal complications. It also creates clearer boundaries, making it easier to track and manage business expenses.
2. Pay Yourself
Even though reinvesting profits back into your business is important, don’t neglect paying yourself. Compensating yourself for your work ensures personal stability and keeps you motivated to grow the business. Just as you prioritize other business expenses, paying yourself should be part of your financial plan.
3. Create an Accounting System
Implementing a reliable accounting system, whether through software or with the help of a professional accountant, is essential for tracking income, expenses, and profitability. Software like QuickBooks or Xero can streamline the process, helping you generate reports, track invoices, and forecast cash flow. A solid system helps you make data-informed decisions and stay compliant with tax regulations.
4. Develop a Budget
A budget isn’t just a projection of future income and expenses—it’s a financial roadmap for your business. By setting a budget, you’ll have a clearer idea of where your money should go and how much you can allocate to growth initiatives. This also helps prevent overspending, ensuring you have a plan to cover essential costs like payroll, utilities, and supplies.
Strategies for Growth
Once your financial foundation is secure, the next step is planning for growth. Expanding a business requires strategic planning, from hiring employees to investing in new resources.
1. Monitor Cash Flow
Cash flow is the lifeblood of any small business. Keeping a close eye on it ensures you have enough liquidity to cover operational expenses and make investments when opportunities arise. Consider creating a cash flow forecast to predict periods of high and low activity. This way, you can better manage seasonal fluctuations or unexpected costs.
2. Invest in Necessary Resources
As your business grows, so too will your need for additional resources, whether they be employees, contractors, or new software. For example, hiring an accountant or finance contractor can help manage the increasing complexity of your finances, while investing in HR or payroll software can automate time-consuming processes. Plan for these expenses ahead of time to avoid surprises.
3. Hiring Employees
When the time comes to hire employees, consider the long-term financial impact. Each new hire represents not just a salary, but also benefits, taxes, and other overhead costs. Ensure you have a robust onboarding and training process to maximize retention, and always be aware of the legal and financial responsibilities that come with employment.
Big-Picture Planning and Financial Management
Effective financial management goes beyond day-to-day operations. It requires long-term planning to ensure your business stays viable in an ever-changing market.
1. Understanding Lending and Credit
At some point, your business may need external funding to support growth. Whether through a small business loan or a line of credit, it’s important to understand how borrowing works. Before taking on debt, assess your ability to repay it and consider how it will impact your cash flow. Additionally, build and maintain a good credit score—this will open more doors for favorable lending terms.
2. Tax Planning
Taxes are an unavoidable part of running a business, but with proper planning, you can minimize your tax liability. Work with a tax professional to ensure your business is taking advantage of all available deductions and credits. Additionally, be sure to set aside funds throughout the year to cover quarterly estimated taxes, preventing any surprises when tax season arrives.
3. Succession and Exit Strategy
While it might seem far off, it’s never too early to think about the future of your business. Whether you’re planning to pass the company on to family members or eventually sell, having a long-term exit strategy in place will help you make financial decisions that align with your future goals.
At Viking Client Services, we’re dedicated to helping small businesses thrive through the ups and downs of financial management. And while small business finances can feel overwhelming, taking the right steps early on will set you up for lasting success. By following these financial management tips, you’ll be well-equipped to handle both everyday operations and long-term growth.
