Two businesses. Two smart leadership teams, two motivated staffs, two potential blockbuster products. So why is one growing and the other floundering?
Three words: smart financial planning. Whether you’re a first-time entrepreneur or a business owner aiming for an IPO, you probably know there’s a lot more to success than keeping the books in order—though assembling an effective finance team is definitely a smart move. Here are 10 ways to smarten up your business finances.
Key Takeaways
- A comprehensive budget serves as a roadmap for business decisions and growth strategies.
- Transitioning to digital documentation supports environmental sustainability, enhances efficiency, and simplifies tax preparation and audits.
- Implementing automated bill payments can give you more time to focus on driving revenue, while preventing late fees and streamlining financial management.
- Remember personal needs such as work-life balance and saving for retirement.
10 Small Business Financial Tips
Implementing strategic financial practices can enhance operational efficiency, helping increase fiscal stability, and support sustainable growth for small businesses. The following 10 tips provide actionable insights to help small business owners navigate financial challenges and achieve long-term success.
1. Budget and Track Expenses
The adage “If you fail to plan, you are planning to fail” is especially true when it comes to your budget. For any business, a budget—fixed if you must, flexible if you possibly can—is your roadmap as you navigate business decisions and even plot expansion routes.
At a minimum, a budget should include the money you expect to take in and the amount you expect to pay out in expenses. With those figures mapped out, you can branch out into forecasting, review any variances between projected and actual figures, and make changes accordingly.
Pros and Cons of Flexible Budgeting
| Pros | Cons |
|---|---|
| Less-rigid resource allocation | Time consuming, requires more maintenance and oversight |
| Allows companies to address unpredicted conditions and circumstances, such as market fluctuations and business volume changes | Limits ability to plan in some areas when budget is changing |
| Better enables businesses to pursue new opportunities and mitigate risk | Predictions have a shorter lifespan—months rather than quarters |
| More accurately reflects the state of finances | Less accountability to adhere to the original budget |
| Accounts for unexpected expenses | |
| Better cost controls |
Keep in mind: This document isn’t just helpful for your team. It’s one of the first things a banker, business valuation expert, or outside investor will ask for. With a well-built budget in hand, you’ll be able to provide a clear view of your company’s financial health.
2. Monitor Cash Flow Regularly
Lack of cash is among the primary reasons businesses fail (opens in new tab). You need to stay on top of your cash inflows and outflows. The best way to do this is to create a cash flow statement to analyze your financial health and then update it at least monthly.
While this statement is easiest to create if you have accounting software, you can also draft a cash flow statement by hand, drawing from information in your balance sheet and income statement. Start by creating a spreadsheet in which you enter your company’s total cash balance at the beginning of your chosen period. This number should be on your balance sheet. Next, add all the cash inflows and outflows that fall into these three categories: operating activities, investing activities, and financing activities. Mark inflows as positive and outflows as negative. Then, add everything up to arrive at a closing balance.
If this balance is higher than the opening balance, you have positive cash flow. If the closing balance is lower than the opening balance, you have negative cash flow. If you want to see an example, check out our sample statement for Wild Bill’s Dog Trainers and Walkers.
Positive cash flow is generally a sign of a healthy company. However, a business may have negative cash flow if it’s new and has spent a lot on equipment and property or is depending on venture capital or other funding as it grows. However, if you’re consistently facing poor cash flow, you might need to make some adjustments to your staff, inventory, or unit margins.
3. Reduce Debt Strategically
While borrowing makes sense when cash flow is low or a business is in a period of growth or expansion, too much debt can end up being a heavy burden. As companies such as WeWork and Wag illustrate, there is in fact such a thing as too much funding.
There are several ways to save a business from succumbing to debt.
- Cut costs: Do you have unused space or equipment? Consider selling it off. Is payroll to blame? Cut back on overtime and excess staffing as much as possible. Look at areas where unnecessary spending is common, such as shipping and high-cost contracts.
- Motivate your customers to pay up and spend more: This is a prime time to reach out and connect with your customers. Offer markdowns if that means they can pay you more quickly. Offering an incentive for early payment can be a smart move.
- Communicate with suppliers: Ask for discounts or deferred payments. Many will work with you rather than lose your business.
- Be honest with your creditors: Share your predicament and see if they can work with you to lower interest rates, increase your credit line, or restructure repayment options. You can also try outsourcing to a debt relief company that can negotiate on your behalf to settle debts for lower rates. As a last resort, consider invoking the concept of force majeure, especially if an uncontrollable event, such as a natural disaster, has hit your company hard.
- Consolidate loans: By consolidating your loans into one payment, you can often reduce monthly costs without negatively impacting credit. Consider a business debt consolidation loan, which may be unsecured or secured with business assets. This type of loan allows you to deal with a single creditor rather than many. It may also land you a lower interest rate.
- File bankruptcy: This is a last resort, as it’s an expensive and complex process requiring an experienced bankruptcy attorney. However, it’s one surefire way to lessen your business debt burden. If your business’s debt woes are temporary and the company is still otherwise viable, your attorney may advise you to file for Chapter 11 or Chapter 13 bankruptcy.
4. Invest in Technology
One reason software -as -a -service (SaaS) has become increasingly popular is that it provides small businesses with access to advanced technology on a flexible, pay-as-you-go basis. This model allows even the smallest companies to leverage tools that were once reserved for larger enterprises.
You can purchase software to help with email, productivity, ecommerce, marketing, and much more, but one area of particular benefit to small businesses is accounting suites that provide integrated financial management, planning, and budgeting. While you could use a spreadsheet to track your finances, accounting software is far more efficient and less prone to errors. You can more easily track sales and inventory separately from income and expenditures, for example. Best of all, your records are in one place and easily searchable when it’s time for taxes or auditing.
5. Go Paperless to Reduce Clutter
Ditching paper isn’t just green; it saves you time, money, and frustration when it comes to taxes or working with an auditor. With the rise of cloud-based business tools and remote work, adopting mobile access and paperless (or less-paper) practices has never been easier—or more important.
We’ve been talking about reducing paper use for years, but the shift to digital has only recently accelerated. The use of contactless payments, for example, has grown, as it offers faster checkouts, increases control over physical proximity, and minimizes contact with shared public devices. For retailers and those tracking employee expenses, going cashless creates a more complete electronic record trail.
In summary, cutting down on paper use offers numerous benefits: quicker access to data, easier recordkeeping, faster payments, and green credentials for your business.
6. Automate Bill Payments
Paying bills manually takes time away from growth-driving tasks such as customer acquisition and product development. There’s also the real danger of missing deadlines and incurring late fees. Refine your process by embracing online banking and automating those payments. You’ll benefit from increased productivity and reduced penalties.
And it gives you a solid foundation for fully automating accounts payable as the business grows. Accounts payable automation allows for better accuracy, faster processing times, accurate data capture, invoice matching and coding, and fast approvals, all while decreasing the potential for fraud.
7. Protect Personal Assets
Is your business a sole proprietorship? If so, your personal assets might be vulnerable to lawsuits. You can protect yourself by filing as an S corporation or setting up a limited liability company (LLC). (opens in new tab) A sole proprietorship or partnership, as well as a C corporation, round out the most common business structures for startups. Each has specific tax implications as well.
What Are the Tax Pros and Cons of Each Business Structure?
| Business structure | Tax pros | Tax cons |
| Sole proprietorship |
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| Partnership |
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| Limited liability company (LLC) |
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| C corporation |
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| S corporation |
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8. Separate Business and Personal Finances
As a rule, personal and business finances shouldn’t mix, and for good reason. For one, keeping track of business expenses and deductions for tax purposes is far easier if you use a separate business account. Additionally, keeping business and personal finances separate, along with choosing an S corporation or LLC structure, shields you from personal liability.
While you may need to sign personal guarantees for leases, loans, and credit lines when the business is young and lacks a strong credit rating, your goal should be to shift those liabilities to your business as soon as possible. Otherwise, you may be personally responsible for any debt incurred should the business default.
9. Maintain Work-Life Balance
Running a business can be draining, especially when you’re starting out. There’s a lot of work and seemingly never enough time to get it done. Many entrepreneurs overextend themselves, sacrificing their personal lives for the business.
This can lead to burnout, and it can end up hurting your company.
If you see yourself heading in this direction, it’s crucial to take stock and reset the balance. You have the power to set boundaries. Carve out time for what’s important to you and stick to that schedule. Communicate your needs to stakeholders and set realistic expectations. In the end, you’ll benefit from better personal and business health.
And extend that to your employees. You likely have a multigenerational workforce, and their requirements for striking work-life balance may change over time.
10. Save for Retirement
While most small business owners naturally want to invest profits back into the company, it’s wise to set aside at least 15% of your pretax income for retirement. For best results, consider a tax-advantaged retirement savings plan, such as a simplified employee pension individual retirement account, or SEP-IRA. (opens in new tab) Any employer, including self-employed people, may establish an SEP. You’ll benefit even if you don’t have any employees, and when you’re ready to hire, you’ll be able to offer them this benefit.
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To learn more about NetSuite accounting solutions, schedule a free consultation today.
