Small businesses have slowly paved their way in the market. Whether it’s your full-time profession or a side hustle, a small business can be a considerable source of income. According to Forbes, eight out of ten businesses are solely managed by their owners. It means you are playing multiple roles: the visionary, the manager, the marketer, the finance expert, and more.
- Create a Well-Thought Business Plan
Before starting any entrepreneurial venture, it is vital to create a business plan that outlines the mission, vision, targets, and strategies to achieve those targets and how you will generate finances to conquer different stages of growth and development.
Start by stating the short and long-term objectives of your business. Include the SMART goals, which ensure that everything from sales targets to product development and marketing is covered in the plan.
Once you have your goals in line, create a reality-based financial projection that provides you with a clear picture of your assets, liabilities, cash inflow and outflow as well as annual profitability. These financial aspects help business owners have a clearer picture of costs, break-even, potential funding, and capital requirements.
- Ensure Tax Compliance
Maintaining accurate financial records since the start of your business allows you to keep track of everything from your income to expenses and assets to investments. It ensures that the business is tax-compliant.
Complying with the tax laws of your region ensures that the business is functioning within the government laws. It also protects you from potential legal issues and maintains a positive reputation and goodwill in the industry.
Even if you are a small business owner, taxes can pile up pretty quickly and become a time-consuming and hectic task. You can consider installing relevant software that manages data, prepares necessary documentation, and ensures compliance with the business model. All you have to do is to find tax software that works your way.
For example, if your business is providing healthcare under the Affordable Care Act (ACA) law, use 1095 software to streamline the IRS form 1095-C. It reduces the time and effort spent on the task, accurately derives the results, and helps you avoid penalties from the tax department.
- Reduce Unnecessary Expenses
It is tougher for small businesses to generate revenue as compared to LLCs. Unlike LLCs, small businesses are not separate from the owner, which means that you are solely responsible and in ownership of what the business is generating.
To ensure that your business is going in the right direction, you must minimize unnecessary expenses. It will help increase profitability and maintain the financial stability of your miniature enterprise.
Identify the expenses that your business can survive without. For example, if you are a startup, you don’t need costly business trips, gifts, and useless subscriptions. Similarly, if there is very little to no staff, having an HR department or a huge office is completely wasteful.
The money you save by eliminating unwanted expenses can go towards resources that are actually being used. You can also improve the liquidity of the business, increase profit margins, build goodwill, and increase flexibility with decisions if a certain plan goes south.
- Maintain a Billing Strategy
During your entrepreneurial journey, you must have experienced a client who is not only late on the invoices but also has issues paying the full amount. These clients not only have liquidity issues in the business but also have trouble operating at a healthy level.
You don’t want this for your business. A continuous cycle of untimely payments can not only hamper your relationship with the client but also disturb the financial functions of the business.
Small business owners must create an innovative plan to make and receive payments on time. To manage an effective billing strategy to maintain good business relations, you need to clearly define the payment terms and conditions to your vendors along with the acceptable payment methods.
Once that’s aligned, update your accounting software with the payment that you have to pay/receive and update your payable/receivable account. A billing software will automatically generate invoices, send reminders to you and the client as well as track payments.
Remember that you might be adhering to strict policies. Still, it is always a good idea to give your clients flexibility in payment dates and methods for maintaining long-lasting relations.
Discounts for early payments and fines for late payments can also be established to encourage a regulated payment system.
- Keep Tabs on Financial Health for Better Growth
Maintaining the finances of a small business is like a roller coaster ride. These ups and downs directly link to the business owner(s). To ensure that you are always on track with a backup, you must review your financial statements regularly. A monthly evaluation of your cashflows, income statement, and balance sheet helps out detect any issues and concerning transactions earlier so you can correct the concern timely. Additionally a quarterly or semi-annual review helps business owners know the return on investment, return on capital employed, asset turnover, profit margins, and other relevant ratios.
Being in touch with the financial status of a small business helps deal with financial challenges that might arise in the future. You can take preventive methods like setting up an emergency fund for the business, having insurance against all assets, and also maintaining a sufficient amount of cash flow to deal with unforeseen circumstances.
Conclusion
Being a small business owner is a matter of pride and joy for people looking forward to an innovative and financially independent lifestyle. However, to get there, you need a financially stable business plan that not only outlines the business objectives but also provides backup in case you are met with a hurdle.
To financially stabilize a small business, owners need to curate a business plan that outlines everything from the mission and vision to investments.
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