You bring a lot to the table as a small business owner. You’ve got a passion for your product or service, you’ve got a vision for bringing your ideas to fruition, you know how to motivate your team and you’ve got a lot of genuine know-how from your degree in business. Those are all fantastic but there are some fundamentals that small business owners often neglect when it comes to finances, either because they don’t have much experience with it or they just don’t like managing the minutia. Here’s the thing — if you fall prey to poor financial habits, you might be killing your business’s long-term success. Want to know what to focus on? Here are a few areas:
1. Make Good Financial Habits a Habit
Set up internal operations that manage small financial tasks every day or several times a week. This could mean scheduling times where you focus on balancing the ledger, staying on top of invoices, managing expenses and keeping track of sales taxes. The tasks at your business may vary, but we’re guessing you know them by heart (and not just because you dread them). Doing these check-ups regularly and not letting them pile up will go a long way toward maintaining your company’s financial health.
Another huge benefit of monitoring your books frequently is that it can prevent fraud. On average, fraud costs small businesses 5% of their annual income and the culprit is usually a lack of oversight (well, that and the bookkeeper).
2. Always Know Your ROI
Many small business owners are diligent about keeping a watchful eye over expenses, but not as many know what happens after that money is spent. Monitoring your return on investment can help you find the areas where your company’s finances are a little leaky and the areas where they’re they’re working for you. Once you’ve spotted these areas, you’ll not only have a fuller picture of your business, you’ll be able to pull money from places where it’s not working for you and into places where it is.
3. Take Care of Yourself
Lots of small business owners refuse to pay themselves, especially as they’re getting things off the ground. It’s good thinking on the surface — pour everything you have into the business to grow it and make it a success and then you’ll cash in down the road.
There are a couple of problems with that approach.
- If the business fails, you’ll have never paid yourself and you’ll have nothing to show for your labor in your personal finances.
- It shows you aren’t valuing your contribution to the business.
- Living on the razor’s edge financially while running a business can quickly lead to burnout.
The takeaway? Ignore the guilt and make sure you compensate yourself.
4. Think Ahead
It can be hard enough just addressing the myriad problems your business deals with on a daily basis, but you’ve also got to plan for the future. Think five or ten years ahead and set aside funds to help bring your vision into reality. When an opportunity comes along for growth, you’ll have the cash to make it happen. These types of foresight maneuvers not only improve your company’s financial health, but they also show employees that you’re willing to invest in the business’s (and their) future.
5. Be Willing to Get Help
We get it — some of these tasks are going to be too much on top of all the other responsibilities you have running a small business. That’s why it’s important to understand your weaknesses and find team members you trust to pick up the slack. If tracking ROI is totally out of your wheelhouse, it’s worth paying someone with a degree in finance to do it for you. If keeping track of tax obligations makes you want to jump out of the nearest window, a trusted accountant is a worthy investment.
One word to the wise: if you put someone on your finances, don’t make them an island. Like the old Russian proverb, “Trust, but verify.”