One of the most important, yet challenging aspects of running a small business is ensuring financial sustainability. Cash flow is often at the top of the list for challenges faced by small businesses, and making good financial decisions is crucial. Sometimes, expenses arise that need immediate attention, but if a business owner isn’t careful, they can derail financial security. By managing your company’s money in a strategic manner and planning for potential emergencies, you can improve the financial security of your business.
Don’t mix business with personal
Once your small business is established and has more employees, this rule is typically a given. However, many entrepreneurs and sole proprietors still charge business and personal expenses to the same account. Even with detailed record keeping, this practice can still make it difficult to discern which expenses can be attributed to business. In an Entrepreneur magazine article called “Keep Your Business Finances in Order With These 6 Tips,” author Thomas Smale states, “Begin by opening separate bank and credit card accounts for your business. For the ongoing tracking and measuring of your finances, and for tax purposes, this practice will take a major headache out of sorting your transactions every quarter or every year, as the case may be.”
Ensure that your personal and business expenses are always separated so that it is easier to track the spending of your business and build a realistic budget. A business owner can more easily determine whether or not they are turning a profit by categorizing expenses and adjusting the numbers to reflect targets. This knowledge will help you build an adequate amount of working capital. According to the Small Business Administration brochure entitled “Financial Management for a Small Business,” “Experienced business owners know that working capital is critical. On the other hand, working capital is sometimes overlooked or misunderstood by new business owners. As your business grows, the amount of working capital cycling through the business to support operations should grow. Successful business owners stay aware of the working capital needed to grow and sustain their businesses.”
Managing your money is one of the key components of running a small business. Smart and practical financial decisions will increase your business’s chance of success.
This article was written by Alaina Brandenburger for Small Business Pulse