Only about half of small businesses survive five years after they start. While this may seem discouraging, there are ways that you can improve your odds when you run a small business. One way to do this is by following a small business guide to improving your business’s financial situation.
Do you want to learn more about ways you can improve your small business finances? Keep reading these 5 tips as a guide for small businesses.
1. Create an Emergency Fund for Your Business
The best financial tip that anyone can follow, business owner or not, is to create an emergency fund. This is a part of your savings that can help you prepare for unexpected expenses. For example, during the COVID-19 pandemic, many businesses had to unexpectedly shut down or lost a lot of sales.
Without an emergency fund, many of these companies went out of business. However, having an emergency fund helps you support yourself through uncertain times. It is typically recommended to start with an emergency fund of 3-6 months.
This means that you need to set aside enough money to pay for every business expense that you would owe during those 3-6 months. This includes rent for your commercial building, income for your employees, and any other products or materials you need to run your business.
Once you have created an emergency fund of 3-6 months, you can start to add to your fund until you have enough money to survive on for a year or two.
2. Understand Start-Up Costs
Next, you need to understand any start-up costs that are associated with your small business. This is important to research before your start your business, as it can help you understand how much money you need to have saved before you can launch your company.
The most common start-up costs include building a website, getting a lease for your office space, and more. However, there are other costs that many people do not take into consideration.
For example, you may need to pay to get licensed in your state, depending on what type of business you operate. You will also need to buy insurance for your company to protect yourself in the event of an emergency.
Understanding the start-up costs can help you create a solid business plan before you get started and will help you better budget your resources.
3. Consult With Professionals
Another one of the best financial tips to follow when you are running a small business is to consult with professionals. While you may be experienced in your field, you want to get the best financial advice possible from experts in other fields.
To get help with your finances, you may want to hire an accountant that specializes in helping small businesses. This way you can get the best financial advice for your unique situation, you can get help with bookkeeping, and an accountant can even help you with payroll.
If you are looking for an accountant in the Charlotte, North Carolina area, Bluefire Accounting can help!
Finding financial professionals is great because it allows you to continue running other parts of your business and you can leave your finances and accounting work to experienced professionals in the field.
4. Separate Personal Finances and Business Finances
One thing that many small business owners fail to do is separate their personal finances from their business finances. This is often the case for business owners that start their company out of their own home. However, setting up a business bank account to keep your finances separate can save you a lot of stress in the future.
One of the main reasons you should separate your personal and business finances is that it is beneficial for tax purposes. Having a business account will make it easier to write off business expenses, get tax deductions, and more.
Another reason why you should consider separating your finances is that it can help you establish your business credit! While you may already have great personal credit, you need to work to grow your business credit.
Having business credit will help you earn more borrowing power and it can make it easier to secure loans for your business in the future.
5. Create and Stick to a Budget
Finally, the last tip that you should follow when you run a small business is that you should create and stick to a budget. Creating a budget helps you track your income and expenses and is a great way to keep your financial information organized.
In fact, when you have a budget, you may even be able to find ways to cut costs for your business! It is also vital to establish a budget as it can help you make important financial decisions ahead of time. This way, you can plan for your future business endeavors and save more money.
One way that you can easily stick to your budget is by automating your business bill payments. This will ensure that you always have on-time payments and that you will never have to pay overdue fees.
Finally, having a budget can help you identify problems with your business before they even occur. If you recognize that you are having cash-flow difficulties several months in advance, you have time to adjust your spending and find ways to stick to your budget.
Follow This Small Business Guide and Learn More Today
Starting a small business can be overwhelming, especially financially. If you need help, following a small business financial guide and these additional tips can help you get started.
Do you want to learn more about business management, networking, and other small business help? We can help! Check out our other blogs on our website to get financial help for small businesses and to find a small business guide to finances.