Five Tips on How to Manage Your Money in the Business World
by Scott K. Schmidt, Chief Financial Officer at U.S. Money Reserve
Running a small business can be tough. Here’s how to make sure that you keep your small business’s finances on track.
Running a business is tough work that requires a lot of attention to detail, savvy financial know-how, and an innovative mindset. Money issues generally top the list of concerns for small business owners. You must strike a delicate balance between the money coming in and the money going out, ensure that you pay your employees and your vendors on time, and make sure that you aren’t missing any opportunities because of a cash-flow restriction in order to keep your business running day-to-day.
Especially in the current economic environment, it’s vitally important that small business owners get a good handle on their cash movement, both in and out. While it’s essential to maintain proper accounting practices across your business, you can do a few things every day to ensure that you manage your business in a way that keeps it sustainable and stable well into the future.
Keep Your Business and Personal Expenses Separate
This may go without saying, but many small business owners fall into the trap of mixing their personal and business expenses, whether they do it in a checking account or on a credit card. Keeping your business and personal expenses separate from one another is essential for a variety of reasons, including taxes, personal liability, and merely keeping the accounting details of your business separate. It makes life a lot easier when you do the work ahead of time to keep personal and business expenses apart.
The best way to ensure that you keep business and personal finances separate is to have dedicated accounts and budgets for your personal finances and your business finances. The first step to take is to set up a separate business account to help you keep track of your cash. In some cases, you’ll need to establish your business and get an EIN (Employee Identification Number) or have Articles of Incorporation to open a business bank account, depending on the bank you use. It’s best to work with the bank you currently have a relationship with, too, since they can use your personal account to help get you started.
In addition to this, in many cases, you’ll need to be physically present at the bank to open a business bank account. Check with your bank to find out what items you might need to bring to open a separate account for your business.
Once you’ve opened a business bank account, you can open additional credit lines if your bank offers them. Most banks offer simple business credit cards as well as full SBA-backed business loans should you need them. A word of warning: When taking out a line of credit or loans on your business, you must use that loan for business expenses only or suffer potential consequences and penalties down the road. A business loan isn’t free money to take the kids to Disneyland.
Additionally, you should also keep your business documents and your personal financial documents separate. Doing so will help significantly when you need to file taxes or when you decide to apply for new lines of credit or need to work with a new vendor.
Always Pay Your Vendors and Bills on Time
Whether you are dealing with vendors or contract employees, it makes good business and professional sense to always pay on time. For one, it helps build your business credit, a score and history that is a lot like your personal credit score that lenders use to determine how creditworthy you might be. Paying on time also helps establish your business as a company that other vendors, highly skilled contractors, and freelancers will want to work with in the future. Paying on time is an excellent way to build your reputation as a reliable business that does good work.
It can even pay to tackle the small monthly bills on time and in full, too. This kind of payment activity can help build your business credit and make more funds available to you should you ever need them. It’s best to set a reminder each month and sit down to go through the books and review what the previous month wrought. It also helps to regularly go over your finances so you have a more precise handle on the money going out and the money coming in. If you pay attention to your finances comprehensively and regularly, you won’t accidentally miss a payment and end up having to lay out additional monies for late fees or penalties.
Have a Cash Cushion
Having a cushion of support for the lean days always makes good sense, whether you are tackling your personal finances or your business finances. The same rules we apply to personal finances are also relevant in small business: Aim to keep three to six months of cash supply on hand to deal with any unexpected issues that might arise.
Unexpected events can include everything from the current COVID-19 pandemic facing our country to downturns in business because of changes in the economy or simple seasonality. While you might not be able to use your crystal ball to see what lies ahead for your own business or the economic fate of the world (wouldn’t it be nice if you could!), you can protect your hard work and investment by ensuring that you have a cushion of cash to fall back on should you need it.
Always Keep Innovating
One key component to ensure that your small business lasts well into the future is continually evolving and innovating around your product or service. As we have seen with the pandemic and resulting stay-at-home orders, it pays to keep your business plan fluid to ensure that you stay on top of the changing needs of both your customers and the economy.
Just because your business “only” does one thing doesn’t mean that you can’t do or innovate in other areas. There are plenty of stories of small companies pivoting during the financial downturn of the current economic turmoil to create related but entirely new revenue sources. Take Cristina McCarter, for example. She was profiled in the New York Times for taking her Memphis food tour company from an in-person to a mostly virtual business in a short period of time. By pairing with local restaurants, she’s been able to open up an entirely new line of income for her small business.
One thing to remember about being a small business owner is that it takes incredible resilience and passion to keep your business going and continue to evolve. No matter what, it always pays to innovate, stay on top of trends in your sector, and make sure that you keep up with the latest news to get a better idea of where your next great business idea might take you.
Hire Experts When You Need Them
Experts are invaluable resources for small and large businesses alike. They can offer insights, advice, and skills that are hard to come by, and they often provide unbiased feedback that can help your business grow and evolve.
As your business grows, your needs will change, and in some cases, the demands on your time might become unsustainable. If and when that happens, you need to hire the right people to help you and your business. Have a sudden boom in your manufacturing line but need a machine expert? You’ll need to hire someone. Need accounting or compliance help? You’ll need to find an expert to support you. Spending money to employ high-caliber, experienced people to support your business needs is a savvy investment that can help you both make more money in the long run and keep your doors open should something in the economy or your business go sideways.
This is especially true if you feel like you don’t have the expertise needed to handle some of the more subtle aspects of business, or if you simply don’t have the required skillset to execute your plan. An example of this would be hiring an accountant to manage your books or handle your taxes every quarter. Accounting and tax rules change every year, and it can be a full-time job to keep up with them. If you are not an accounting expert, it makes sense to bring in someone who can do the job in a comprehensive way. Consider it an investment in the future of your business.
If you follow these five everyday tips, you will manage your money better and ensure the longevity of the business you have worked so hard and sacrificed so much to build.
