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.
According to the Small Business Administration, half of all small businesses fail within their first five years*.
How can you avoid their fate? We asked experienced entrepreneurs for advice.
- Love 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, whether by finding a mentor or partner or taking business classes online or at a local college.
- Calculate your true costs. You may be tempted to celebrate when your business has a great week (or month, or year). Just 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, great — your marketing is working! But don’t forget to 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.
- Keep up with invoices. 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.
- Pay bills on time. That includes credit cards, which should be paid off in full every month. Late payments and balances mean late charges and interest, which can drain your reserves quickly.
- Track expenses in real time. 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.
- 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? Service providers push subscription plans because they know many people will forget (or be too lazy) to cancel. If you do subscribe to a service you need for your business, set a calendar reminder to reevaluate it a few days before the second charge is scheduled to hit your credit card.
- Mine your strengths. Spend your time on the parts of your business you’re good at, and outsource (or hire for) the things you’re not. If you worked in public relations, use your contacts to get media coverage. If your background is in graphic design, create your business’s logo, signage and website. Marketing expert? Learn to use targeted Facebook ads or Google Adwords to bring in new customers. Hire out functions only when spending time on them would take you away from more important tasks no one else can handle.
Create good financial habits and you’ll be on the road to success, for you and your employees.