Owning a small business can be incredibly rewarding. You can increase your financial independence, learn new and innovative skills, build valuable industry connections, and create jobs for deserving employees—all while building your brand and seeing your ideas come to life. However, overseeing a business comes with its fair share of challenges, with proper financial management being one of the hardest to navigate.
Here are a few tips on how you can keep your small business on the right track for financial success.
Many of us are familiar with the term but may not know exactly what it means. A recession is defined as a period of significant decline in economic activity, spread across several months or years. During this period, the country’s gross domestic product (GDP), or the value of its goods and services, drops. Consumers spend less, companies make fewer sales, and businesses cut back on investments—which may force organizations to slow or stall hiring and lay off some of their staff. Recessions are an unavoidable part of any economy, but you can weather the storm by anticipating its challenges and preparing accordingly.
Here are some strategies to prepare your finances for a recession.
How do you cover gas expenses when traveling to a customer meeting? Do you purchase lunch? Which credit card are you using to buy writing instruments and paper products? Keeping your personal and business finances separate will not only save you time when tax season rolls around, but it will also enable you to track your expenses with more accuracy. Additionally, using a business bank account to send and receive payments establishes a greater level of trust with customers and suppliers.
If you grant credit to customers, you’ll know that you may not get paid for goods sold or services provided until the due date or beyond. Unfortunately, keeping track of all your accounts receivables gets more challenging as time goes on and clients start to accrue debt. And as clients begin to accrue this debt, it may get more complicated to keep track of all your accounts receivable. To better manage your money, keep track of all you’re owed from who and establish a procedure for when a bill is not paid—even going as far as setting a reminder in your calendar to follow up if it may slip your mind. This could involve sending a follow-up invoice, calling, or even imposing fines or additional fees if certain deadlines are not met.
It costs to live. Many business owners will invest all their available funds into their company, believing they will see a higher return on their money than if they had invested it elsewhere. However, it’s important to remember not to put all your eggs in one basket. Numerous elements may affect your organization, many of which are outside your control. Even worse, these variables can force you out of business. By paying yourself first, you can reduce your stress levels and make wiser decisions, spread out your risk, and have a fallback plan in case things get rough financially.
Knowing when your bills are due, such as accounts payable, business loan payments, or credit card payments, is essential to ensure that you have enough cash to pay. Failure to pay can cost you money in the form of late fees or interest charges, damage your company’s credit rating, and harm your relationships with lenders or vendors.
Whether it’s a fire, a flood, or a cyberattack, unpredictable circumstances can disrupt your business operations—which is why you need a business contingency plan. A business contingency plan, or BCP, is a proactive plan for protecting against unfortunate circumstances that may arise as a business owner. This strategy ensures that your resources and employees are protected and provides a financial guideline to follow in a crisis. Take the time to plan for worst-case scenarios by conducting a risk assessment, determining the potential economic impact, and running practice scenarios to determine the best way to recover from an emergency. These assessments will help create protocols that someday help get things back to normal after a disruption.
Wise business owners know that proper financial management is one of the most critical factors for success. Understanding business accounting basics can help you better predict your company’s future and make smarter financial decisions. But if you’re feeling overwhelmed with other responsibilities, consider hiring a bookkeeper or accountant to help you set up, track, and maintain your business finances. Your financial records are the sole depiction of your gains and losses, which is why how you manage your books can make or break your company.
Check out our previous blog post on How to Protect your Finances ahead of a Recession. In addition, if you need personalized financial advice, our team is always here to help—contact us today to book an appointment!