How Can SMBs Keep Their Finances In Check?

Running your own business presents its own freedoms and challenges. Approximately 55% of entrepreneurs said they became self-employed because they wanted to be their own bosses.

It’s no secret that most small and medium-sized businesses constantly confront the threat of running out of money. Cash flow problems are the leading cause of companies going under, rather than an inherent lack of profitability.

So, how can SMBs keep their finances in check?

Hire A Professional

Professional bookkeepers are there to make sure every transaction is dutifully recorded. In addition, bookkeepers will work with your accountancy team at the end of the year to help you extract insights from the performance of your business in the last year.

Managing your finances alone makes it easy to lose track of the numbers and make mistakes. However, investing in professional bookkeeping services doesn’t have to break the bank.

Outsource the problem to someone with experience in the field and have peace of mind that your numbers are taken care of.

Invest In Growth

Any small or medium-sized business should have an eye on the future. Invest in your growth opportunities that can help your business thrive.

Financial constraints will not work themselves out on their own. Even the largest businesses in the world are in a perpetual race to break new ground and prevent a decline in profitability. Standing still is not an option.

But what are growth opportunities, and where should you be putting your money?

There are several areas that most entrepreneurs focus on. Here’s a short list and the reason why this is considered a growth opportunity:

  • More Employees – Invest in the future and upgrade your capacity. Spend some money on attracting the brightest and the best. Human capital is the most important asset any company has.
  • Customer Service – Customers always appreciate better service. Think about how to upgrade your customer service department, such as purchasing a chatbot or creating a 24-hour customer support line.
  • New Products – Why not step into a new arena entirely? Go beyond what you are known for and become a multifaceted brand.

Your team should always be searching for potential growth opportunities. But, even if you cannot afford to take on those opportunities now, maintaining one eye on the future is a great habit to adopt.

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Don’t Fear Loans

Did you know that 70% of businesses have outstanding debt?

Many business owners are afraid of taking on loans because of the financial repercussions that will result from failure. Unfortunately, unless you have significant cash reserves in the back, you will face major challenges regarding growth and expansion.

Loans can also bolster your cash flow and ensure everyone gets paid on time. There is a reason why publicly traded companies became publicly traded in the first place. Every successful company has taken on external financing at various points in their stories.

Maintain Your Business Credit Score

A surprising number of business owners are unaware that their businesses also possess a credit score. It is this number a lender will examine when determining whether to approve you for a loan application.

You never know when financing may be required. However, successful businesses have been saved when they enter the financial doldrums because of a high business credit score that allowed them to secure emergency financing.

The principles of a business credit score are no different than your personal credit score. Take out credit, pay it back on time, and do it over a long period to boost your rating.

Practicing good habits like never allowing balances on your business credit card to run more than a few weeks will stop you from getting into trouble.

Examine Your Business Strategy

Every business owner has run into the problem of a client who is consistently late in invoicing and making payments. Unfortunately, managing your finances means you expect everything to run like clockwork. The problem with this is that a single nonpaying client can cause you serious problems.

You need to change your approach if a considerable amount of cash is tied up in unpaid invoices. Repeatedly invoicing them or making phone calls will not necessarily lead to any alteration in the situation.

Instead, adopt a positive billing strategy. For example, you may opt to append a 2/10 Net 30 to your payment terms. Then, if a customer pays off their invoice in full within ten days, they will receive a 2% discount on the total bill.

Encouraging fast payments by dangling discounts and other special deals in front of your clients can free up your cash flow and mitigate the problem of clients who refuse to pay up on time.

Prepare Your Tax Payments In Advance

Most businesses must make quarterly tax payments based on an estimate derived from their previous tax bills. The advantage of quarterly tax payments is that you do not need to come up with a huge lump sum in the spring.

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The downside is that your quarterly tax payments to the IRS are based on last year, so if you have an extraordinarily good or bad month, you may be paying more or less than you truly owe.

Prepare your tax payments in advance by putting some money aside. You may even want to request that you switch to monthly repayments if you are constantly experiencing problems getting the money together for quarterly tax payments.

Many entrepreneurs forget about their tax obligations, and it is this flaw that can bring down their businesses forever.

Conclusion

SMBs are naturally vulnerable to changes in the financial landscape. One lousy year could put them under severe pressure to perform or risk being forced to sell off assets.

Smart saving strategies and investing in the right places can give you the momentum and clout to continue your journey to perpetual profitability. Devising a strategy with stakeholders and sticking to it regardless of what is happening should be a priority.

What are you doing to keep your SMB’s finances in check?

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