11 Financial Health Strategies for Business Owners

The financial health of your company is more than making sales. Staying on top of money management and keeping your business on solid financial footing is one of the most challenging and important aspects of business ownership. Ultimately, half of all small businesses fail within their first five years.

Why? Different businesses succeed for different reasons, but according to the Center for Financial Services Innovation (CFSI), an individual’s personal financial health is fundamental to their ability to start, run, and grow a business. It’s not just about keeping your business in the green—it’s about keeping your own wallet healthy too. Here are our favorite financial tips to help you and your small business thrive:

1. Know your numbers.

The best way to make sure your business stays solvent is to live by your numbers, including revenue, expenses, payroll, overhead, etc. “I’m not a numbers person” isn’t an excuse. Learn to read spreadsheets and balance sheets, create financial models and forecast sales—and make sure you’re taking any related additional costs into account. If sales grew because you improved your signage, invested in online ads or sponsored a community event, then your marketing is working! But don’t forget to also look at how much you spent vs. your additional revenue to figure out your return on investment (ROI). That’s how you’ll know whether to make those same expenditures next time.

2. Keep up with your billing.

The faster you send out invoices, the sooner those payments will hit your bank account. Calendar time every week to get your invoices out. The longer you let it go, the more you’ll hate (and procrastinate) the process, meaning a longer wait to collect. Or, better yet, automate your invoicing by setting up recurring billing. Check out this infographic from PaySimple on what invoicing day looks like for a business owner with recurring billing vs. with manual invoicing. And you can set up recurring bill payments too, not just send them. Remember, late payments and balances mean late charges and interest, which can drain your reserves quickly—and trigger a hefty IRS bill. Pay your business taxes on time, keep up with your monthly bills, and consider setting up an automatic bill payment plan from your business’ bank account(s).

3. Meet your financial obligations.

Your financial obligations likely aren’t just limited to utilities and the IRS. As of 2017, small businesses employed nearly 60 million Americans, with rising labor costs easily accounting for as much as 70% of total business costs. It’s important to know that failing to make payroll constitutes as a violation of the Fair Labor Standards Act (FLSA)—leaving you in a situation where employees could potentially sue for wages owed. Paying your employees is a top priority, and having a budget and automating invoices are just the first steps towards making sure you have enough cash on hand. Not sure where your payroll costs should fall? A good rule of thumb is no more than 20% to 30% of gross revenue.

4. Keep business and personal separate.

While many business owners use their own savings to fund startup costs, it’s good practice to set clear boundaries as your business grows. Establishing your business as a separate legal entity protects your personal assets from being on the hook in case your business goes under or is served with a lawsuit. Having a separate business credit card and checking account also makes it easy to separate your business expenses from personal ones (a plus since many business expenses are tax deductible). Write checks for business expenses from your business bank account, pay yourself a salary out of your business account, and keep track of all expenditures—instead of using your personal card.

5. Track expenses in real time.

Speaking of expenses: do you throw receipts in a shoebox (real or virtual) and sort them once a year? Break that habit now. As soon as you spend money, whether it’s on supplies, shipping or any other business expense, record it. Use whatever system works for you and/or your team: an app like Concur or Shoeboxed, or a low-tech spreadsheet that lists dates, what you bought, amounts, and expense categories.

6. Build up your business credit.

Financially healthy businesses all have one thing in common: a strong understanding of credit products and experience using them. Being able to access business credit can be a make it or break it moment for your business, especially if the unexpected happens. According to the U.S. Small Business Administration, 45% of small business owners don’t know they have a business credit score, while their businesses actually have 10 to 100 times greater credit capacity compared to personal credit. Having business credit means you won’t have to rely on personal credit alone to secure funding, and you may be able to get much larger loans from the bank. Start building up your business credit score using some of the tips we mentioned before, like opening a business account. Make sure your credit amount stays high, your debt amount low, and that payments go out on time—every time.  

7. Minimize your overhead costs.

Do you really need that monthly subscription for video editing software, or can you find free tools that will get you most of the result without the ongoing cost? Set a calendar reminder to reevaluate each subscription service a few days before the second charges are scheduled to hit your credit card. And if you can’t find the tools that you need or don’t have extra cash in the budget for a monthly subscription, consider making your own. Open source software is available online for small business owners to download and use at zero cost. Find and customize free customer relationship management (CRM) tools, accounting apps, or even create your own content management system.

8. Optimize your workforce.

“Work smarter, not harder” isn’t just a corporate buzzphrase. Workforce optimization is about knowing how your employees work and how to best leverage them to hit your business goals. If you don’t already use one, optimize your workforce with a timekeeping app. This will make it easier for employees to clock in and harder for them to buddy punch. Check out scheduling software to make sure your best employees are on the clock for peak hours and that you aren’t paying constant overtime. But don’t forget—optimizing your workforce doesn’t just mean helping your employees work better. Take advantage of your business’ greatest resource: you. Spend your time on the parts of your business you’re good at. If you worked in public relations, use your contacts to get media coverage. Marketing expert? Learn to use targeted Facebook ads or Google Adwords to bring in new customers. Workforce optimization means making the best use of the right people resources, including yourself.

9. Focus on employee well-being.

Running a business is stressful. But your business can’t financially succeed if your employees are also stressed and disengaged. Employees who feel engaged, respected, and motivated at work outperform their disgruntled peers by a long shot, with engaged employees outselling unengaged employees by 20%. Losing a single full-time employee could cost your business almost $2,500, not to mention the time you spend recruiting and interviewing someone new. So although it’s easy to get distracted by the day-to-day demands of being a business owner, don’t lose sight of the larger team effort. Take some time to check in with your team, show your appreciation, and remind them of what you all have in common: building a great place to work for everyone.

10. Create a business emergency fund.

Low on cash? You’re not alone; half of all small businesses have a cash buffer of less than one month. Business income isn’t always predictable, and securing a loan from the bank or family can take time. Experts suggest that business owners should have three months’ to a year’s worth of expenses set aside for emergencies. Whether it’s meeting payroll when money is tight or dealing with unexpected repairs, having extra cash on hand, also called “retained earnings”, can give you breathing room to make good decisions—not just decisions out of panic. But it’s not all doom and gloom: a business emergency fund can give you the chance to invest in a surprise growth opportunity or hire more staff in a pinch as well. It may feel counterproductive to put money away especially if you’re already operating on thin margins, but it’s worth it.

11. Don’t forget to take care of you.

Being a small business owner has been called “one of the hardest jobs in America.” While you’re focused on doing everything you can to keep your business healthy, it’s important to take care of yourself financially in the process. Banks consider your business credit score for loans, but they also look at your personal credit history too. Ensure personal accounts are in order and that you aren’t behind on bills, which could negatively impact your credit score. If you’ve used your savings to launch your business, work to build it back up a little at a time.  Running a business also doesn’t mean you have to stop thinking about retirement. Small business owners can open an SBO-401(k), or “independent” 401(k) and keep saving for their next big investment—the future.

Create good financial habits and you’ll be on the road to success, for you and your employees.