Small business owners (SBOs) usually have limited fund sources for their startups, so financial advice from the experts and fellow entrepreneurs are extremely helpful to create and maintain successful businesses. We list five financial tips every small business owner should know as advised by seasoned entrepreneurs in the field.
1. Make use of lending capital.
The global economy is slowly recovering from recession and the banking industry both have an appetite and the money to lend – take advantage of it says Barry Glassman in his Forbes article.
Accessing capital can be advantageous in the following scenarios:
- You want and are ready to expand your business, whether it’s to acquire a new company, launch a new service, offer new products or hire more employees.
- You have debt that can be refinanced with the market’s recent lower interest rates
- You want to establish a line of credit (LOC). LOCs can be helpful when you need to have liquid cash to meet daily operation needs like payroll and have come up short for the week or month.
2. Have a lean start-up.
Notice we didn’t use the term “small”. The apt term would be “simpler”.
Still in Glassman’s Forbes article, he mentioned that the Lean Start-Up book by Eric Ries covers this tip extensively. The primary takeaway of the book is that when you launch your start-up, you don’t need to start big or have an elaborate business right away. It champions the idea of testing your vision of a business by launching a simpler or basic form of your concept to gain feedback. Even big businesses like Starbucks test a new product on a small market first before launching it across all stores. Small businesses should do the same thing.
Start-ups should also focus on keeping fixed costs at a minimum. Fixed costs are the money you spend on things that don’t directly result on profit but need to bear to keep operations running. You have to bear the weight whether you make money or not. An example of this is working from home instead of renting an office, using free call services like Skype and Viber instead of spending for a business landline and even doing exchange deals with professionals. Consultancy services and advertising or marketing services are prime examples.
Be lean without sacrificing quality of service or efficiency of operations.
3. Strike a balance between spending and investing.
According to Abbas Hyder, president of Compendium Nancial Inc., an organization of accountants and business analysts who help entrepreneurs create extremely successful businesses, the best way to run a small business is to know how much money one needs to make in order to break even and how much one has to spend to run your business on a daily basis. You need to add the fixed, variable and allowance expenses and project it towards your prospective income. From there, you can do a check and balance on your business needs versus wants.
And while it’s easy to offset expenditure because of the benefit it will bring to the business, take care to balance its cost versus its benefit. “If your expense doesn’t directly help you in increasing your business or quality of your work, don’t spend on it”, says Hyder.
4. Account for every single penny.
Most start-ups fail to account for every single penny. In accounting, the smallest mistakes have a snowball effect. So whether it’s a clerical data entry error or simply an error of not filing receipts, accounting mistakes can impede the growth of your business or worse, be the cause of its failure. As we have said in our past article, hire an accountant for your small business right from the beginning. He can assist you with more than just accounting but also offer financial advice.
5. Consider outsourcing than employing.
There are certain aspects of a business that needs to be handled by experts who actually know what they’re doing. Rather than employing one and drive up your overhead cost, why not consider retaining one? Retaining a consultant who is an expert in their field is the norm these days because of the transformation of how we do business. Global, borderless and virtual offices are now doable thanks to advances in communication and technology.
Even big corporations use consultants and outsource most of the functions outside of their core businesses. An advantage of hiring an expert is that they have greater experience and knowledge in their field. They have worked with hundreds of other businesses so they can bring a different perspective and offer advice for best practices consolidated from working with so many other clients. The value they bring is more than the service they offer – it can help you avoid costly mistakes and help you improve the other areas of your business.
Managing your business’ finance and accounting on your own is taxing and does not always result in favorable results. With our customized solutions, rest assured that all your concerns would be addressed accordingly and at the same time, it would allow you to concentrate on other important factors vital for your company’s growth. Learn more!