Small business finances are always a tough subject to tackle, as small businesses typically work on shoe-string budgets. The pandemic put a spotlight on how many small businesses don’t have a solid grasp on their finances or solid business finance processes in place. So, let’s look at the five steps you can take to get your small business finances in order.
- Get Real About Your Finances
When it comes to small business finances, you have to get real. This means you have to look at all of your bills and payables, your bank accounts, and all of your income. And you need a real system for tracking your finances.
Spreadsheets are not a financial tool. You need to invest in business accounting software that can track all of your finances. This is the only way you’ll have insight into exactly what comes in and goes out every month so you can strategically plan.
This step is the hardest. If you don’t do it, none of the other steps will work.
- Hire a Qualified Bookkeeper
Once you have clarity on all of your finances and you’ve chosen accounting software for your business, it’s time to hire a qualified bookkeeper.
A great bookkeeper can help you sort through the madness that is your financial picture. Even if you consider yourself a fairly organized planner, bookkeepers are hard-wired to restructure, reorganize, and track the finite details that can make or break a small business.
By working with a professional bookkeeper, you can have them reconcile your monthly books and create the custom reports you need each month to plan your sales and marketing efforts effectively.
- Create a Small Business Budget
You cannot run a small business without a small business budget. This is where so many small business owners run into trouble, and it’s critical to success.
By putting a budget in place, you’ll have a bird’s eye view of when your money is coming in, where your money comes from, where it’s going, how long it stays with you, and when you need more of it.
A budget tells you the hard, cold truth. And it holds you to it!
Putting a budget in place isn’t easy, but once you have it in place, you’ll feel more in control, which leads to less stress.
- Limit Your ‘Unnecessary’ Expenses
Here’s a rule I use for expenses: Never purchase anything without asking yourself WHY three times (and getting three different answers).
You should view expenses as dead weight in your small business and the greatest barrier to small business financial success. So before you spend, ask why.
Do you really need that office space, or can you work from home?
Do you really need that Mercedes, or can you muddle along with a more modest car (for now)?
Take a good hard look at your monthly expenses and for any that you can live without, get rid of them. This includes monthly subscriptions that you never use.
For your necessary expenses, downsize them and shop around. Shop around for banks that don’t charge monthly fees – or any other hidden fees. Look for software solutions that provide the same level of service and functionality but at a lower cost. small business financial success
Make one day of the week your “frugal day.” On this day, ask yourself, “Where can I save money today?” It will be easy once you see how these savings boost your profits and take-home pay.
- Figure Out How to Increase Your Revenue Streams
The previous four steps were about cleaning up your finances and recognizing how your money comes in and goes out. But now, let’s talk about how you can make more money.
Start by reviewing your income over the last two years and develop an income forecast for your business. Even if you have had sporadic sales and more expenses than income, knowing exactly where your money is coming from is of the utmost importance to growing your business and establishing a secure and comfortable future for you and your family.
By knowing where your money is coming from, you can analyze what you did to earn those sales, including an understanding of:
- Who bought from you?
- Why did they buy from you?
- Are there additional services you can offer your clients?
- How can you reach more prospects like these clients?
Many small businesses miss the opportunity to increase their sales with existing customers because they are always so focused on looking for new business. The reality is that those who have already bought from you are more likely to buy from you again. So use that to your advantage to increase your sales.
Getting control of your small business finances is one of the toughest things you will ever do. Money is such a complex and emotional element of our lives. But we have to control it, or it will control us.
Planning today will be the best thing you can do to ensure your small business success tomorrow!