When it comes to small business owners, there is a lot that is on their plate since they will have to manage business and personal debts. Here are some small business finance tips to help you keep a tab on your revenues and expenses.
Manage Your Accounting
Traditionally, financial reporting has been relatively static. There is usually a 3 tier system that allows you to compress and analyze your financial data against new accounts.
The future of the accounting is analytical and scalable. With the latest software, you’ll be able to focus more on tracking and analyzing your financial data on a much deeper level, putting a spotlight on potential cash drains. Having a thorough understanding of your costs and revenues means that you can investigate specific areas of your business plan, enabling you to identify problems much more quickly than before.
Invest in accounting software that utilizes the power and the efficiency of the cloud. Once thought to be an unsecured mode of storage, the cloud in recent years has been galvanized by security applications. There are also substantial cost savings associated with cloud computing. There is no more costly installations or expensive on-site servers — the accounting cloud provides maximum organizations with instantaneous access to data..
Make Your Financial Projections
Forecasting your revenues and expenditures is integral to your financial success, especially if you are a startup. For the uninitiated, financial projections can be time-consuming. However, thoughtful forecasts will ensure that you are able to mitigate the ebbs and flows of your income. There are several moving parts when it comes to your financial projections.
Tally up your expenses — not just your revenues. Start with fixed cost estimates, and categorize them. Then you can start to tally up your variable costs — these are costs that change over time. These can be costs of goods sold, and the direct labor costs like marketing and customer acquisition. You want to double the estimates allocated for advertising since they can quickly escalate beyond your expectations. Triple your estimates for insurance, and keep a close tally of direct sales as a direct labor expense.
Forecast revenues and be conservative about it. Optimism is essential for any business, but it’s also important to be realistic and cautious when it comes to your revenue forecasts.
After this aggressive revenue forecasting, reconcile your revenue and expense projections by tempering it against a series of critical ratios. For example, keep in mind of your gross margin. This is a ratio of total direct costs to total revenue during any given year. You also want to keep an eye on your operating profit margin. There should be a positive trajectory with the operating profit margin.
Pay Yourself First
It is very easy to lose yourself with the everyday tasks of a business owner — you need to be aware of your accounting, ensure that you are in alignment with local and federal laws, that your employees are taking care of, and that customers are happy. These are fundamental tenets of any small business — but it is also vital that you take care of yourself by paying yourself first. One of the best ways to conceptualize your profitability is to ensure your income. A small business owner that isn’t satisfied and isn’t able to take care of their expenses is a small business that is going to fall apart.
Invest in digital platforms and to go paperless. Digital businesses can augment your small business since there is an app or software for almost every aspect of your business. Even if you have a brick-and-mortar business, there are areas where you can go digital that will not only help you save money but will also nullify human error. From accounting, to billing, to coaching, you can find an app that will provide sufficient services.
Whenever you can, go paperless. If there are important forms that need to fill out on a regular basis, you can invest in secure storage spaces that use cloud computing to create contracts that can be reviewed and even signed online. For billing, opt for paperless for your business checks and credit cards.
Make Sure You Have Enough Capital
The antithesis of an unprofitable business is a small business owner that is knowledgeable and willing to recognize when they are wrong. One of the best ways to ensure that your business is successful is to invest in your customers and to prove to them that you are an authoritative figure in your niche. You can accomplish this by investing in a business blog or website that humanizes your business, that reaches out to customers via newsletters, and is willing to participate in surveys and interviews with your target market.
It’s also important to take calculated risks. Look at the costs and benefits of every decision and figure out the worst-case scenario. Then formulate several backup plans, collaborating with your advisers, consultants, and other entrepreneurs. Consider seeking alternative funding or securing additional capital. Carefully planning out your course of action and making it a collaborative effort will ensure that you have covered all the bases before investing in something that you shouldn’t.