You don’t usually open a small business because you love finance. Entrepreneurship is a passion play. You have a good idea and the go-get-em attitude that it takes to bring it to life. Like it or not, though, financial fluency is a critical aspect of making smart choices that will help keep you afloat.
To survive and thrive, you need at least a basic understanding of business finance. In this article, we look at areas you should focus on to help your business succeed.
Invest in Your Financial Literacy
When you start out as a business owner, you’re probably going to be doing multiple jobs. You’re CEO, but you might also be the head of sales, marketing, and yes, accounting. Hopefully, this won’t be a long-term arrangement, but regardless, you’ll need to know what you are doing, until you can afford to pay someone to do that for you.
Investing in your financial literacy doesn’t have to be an enormous undertaking. It doesn’t even have to be a financial investment. It could just be a question of putting in some time to learn about key aspects of your financial operations.
In the digital age, it’s easier than ever to get free information. You may also find that your community has free resources to help you along. Check-in with your local library to see if they provide classes or resources about financial education.
Alternatively, you may find affordable online classes that will help you learn the ropes relatively quickly. You don’t need to come out the other end of this as an accountant. You do need to know how to keep your business in tip-top financial health.
It’s also worth keeping in mind that the more you learn, the more you open yourself up to high-level business concepts. For example, data implementation.
Incorporating a Branded Credit Cards
Effective financial management is a cornerstone of success for small business owners, and incorporating branded credit cards into the strategy can provide a valuable edge. These specialized cards offered by RAI PARTNERS have a lot of benefits that align with the unique needs of small businesses. First and foremost, they facilitate seamless expense tracking, eliminating the hassle of sifting through receipts and invoices. Moreover, branded credit cards often come equipped with digital platforms that allow owners to monitor spending in real-time, helping them stay within budget and make informed financial decisions. The automated rewards systems of these cards further sweeten the deal, enabling businesses to earn cashback, discounts, or rewards points with every transaction. These rewards can be reinvested into the business, promoting growth and stability. Additionally, the integration of AI-powered insights aids in analyzing spending patterns, offering valuable insights that inform strategic financial choices. By incorporating branded credit cards into their financial management toolkit, small business owners can streamline operations, optimize spending, and cultivate a healthier financial future for their ventures.
Make a Budget
This sounds so obvious, but apparently it isn’t, because only about 50% of small businesses have a budget. Granted, you can survive without one, but it’s not a sustainable strategy— particularly not if you are trying to meet specific financial goals.
Your budget is also going to help you weather difficult times. For example, the economy slips into recessions about every three to four years. These aren’t all the big, splashy, scary kinds. Many might go unnoticed by the average consumer. But that isn’t you anymore. Any economic downturn can have a major impact on you and your small business.
Being able to make a good, sensible budget may be the difference between staying afloat and caving during the next recession. When you upskill into financial literacy, make budget creation a top priority.
Timing is Everything
You want your business to consistently have a set degree of liquidity. How much money you actually need to be able to access at any given moment will be up to you, but it will at least need to be enough to cover payroll and your other business expenses.
Ensuring that you always have enough in the coffers to cover your debts isn’t just a question of sensible budgeting. It’s also a matter of timing your purchases correctly.
For example, maybe you have enough in the bank to swing getting that new oven your business needs. However, if you buy it right now, your business will be scraping by on the bare minimum for the next eight days. That means that if any other repairs or emergency situations pop up, you literally won’t be able to pay for them.
However, as you comb through your revenue reporting with the trained eye of an amateur financial expert, you see that in twenty days, you will have enough cash to swing this new oven, and not have to worry about making payroll.
Obviously, even though you can afford the oven today, it’s more sensible to wait for a few weeks and get it when there is no longer any risk.
Of course, this is an idealization. If the oven is broken right now, and the only choice is to buy today, or pause operations entirely, it may be more sensible to take the risk.
Incidentally, risk assessment and management are other financial skills that you may develop as a small business owner. High-pressure choices like the one described above will never be fun or easy but viewing them with an educated eye will vastly increase your odds of experiencing ideal outcomes.
Don’t Forget About Your Receivables
While this isn’t relevant for all business owners, it can be a big issue for those who provide services on credit. You do the work, but the customer takes their time getting around to providing you with a payment.
There are many reasons that this might happen. Maybe the customer forgot. Maybe they just don’t have the money right now. Whatever the case, you’ll never know unless you are keeping an active eye on your aging receivables.
It’s a bit of a tricky process. Usually, the goal is to get your money back without alienating the customer. After all, when this is all over—
Umm. Are you—
No, I’m sorry. It’s just—alienate the customer? They didn’t pay. I don’t want to hurt anyone’s feelings, but I need my money.
Ahh. A fine point. Why should you handle a customer who hasn’t paid up gently? There are situations where a firm hand may be required, but you should apply caution when determining what those situations are.
Let’s say you come out guns blazing. You get your money back, but only after threatening to call in the creditors, and yadayadayada.
So now you have your money, but what you don’t have, is a customer. This person will never do business with you again, and they will probably tell their friends not to either.
Or, you could handle it gently. Communicate. Stay on top of things, and eventually collect. It’s called “dunning management,” and it’s a key component of protecting your revenue.
If you handle the situation smartly, you can get your money back and possibly even keep this person as a customer. Just don’t offer them any more lines of credit.