Having a good financial strategy is an indispensable part of running a small business. It’s more than just balancing your accounts; it’s about creating effective ways to survive during a crisis and thrive during good times.
From opening savings accounts to taking out loans, you should manage your money wisely to sustain your small business.
Effective Financial Strategies for Your Business
Boost Your Savings
Building a backup savings plan can help keep your business afloat in the event of a crisis. Whenever you plan out your budget every year, ensure you have sufficient savings to cover any potential business losses. Most businesses like agriculture and manufacturing experience seasonal sales cycles, so it’s a good idea to have a financial cushion during downtime.
Like households, businesses should have emergency savings to meet essential expenses. Here are some best practices on how to create your emergency fund:
- Start Small: Starting with a small amount can be a big help down the road. You can increase that amount once your sales pick up and you start to have more disposable income. You can also start saving by cutting some of your business expenses like subscriptions you rarely use or looking for less expensive suppliers.
- Set Aside a Percentage of Your Revenue: Save a certain percentage of your income each month to increase your savings. It will increase every time your revenue does and can be useful, especially for seasonal businesses during slow times.
- Consider Other Resources: If you think an emergency fund isn’t enough, consider other funding options like a line of credit to save your business during a crisis.
Protect Your Business against Fraud
All businesses should pay close attention to protecting their money as this is a common area of fraud. Since most businesses now use electronic payments, it’s important to regularly update your antivirus software to make sure your business’s and clients’ data are protected.
Separate your personal bank accounts from your business accounts so criminals won’t have all your money if ever there’s fraudulent activity. Also, make sure your business is insured so that you have added protection against any losses from crime.
Maintain a Good Credit Score
Establishing a good credit score will make your business obtain funds from various financial institutions easily and successfully. A score of 700 or higher establishes goodwill for your business and qualifies for credit at good terms. Here are some tips to quickly boost your business’s score:
- Always Pay Your Bills On Time: Avoid delayed or missed payments to maintain a good credit score. Most companies nowadays have options for online payments for convenience, and you can also opt for automatic payments as long as you maintain sufficient funds in your account.
- Dispute Any Errors: Always check your credit file and make sure that all reports are updated and accurate. Any unpaid accounts can affect your report, so make sure to dispute all errors as they can impact your credit score.
- Add Positive Payments: Adding more positive payments to your file means a higher business credit score. One way to do this is by establishing a credit account with suppliers that you constantly work with. It will increase your positive payments, and you’ll retain a better score.
Invest in Growth
Aside from your savings, set aside some money for possible growth opportunities. For instance, you can invest in new technologies to improve your business processes and eventually increase your revenue. You can then have more savings that can be used for more reinvestments in your company.
Another investment that you can do is an expansion of your product line. Introducing products that appeal to existing and new target markets can increase revenue streams while keeping current customers and attracting new ones.
Consider a Small Business Loan
While an added debt can be scary for small business owners, applying for a loan can help cover business expenses without affecting your operational funds. For example, purchasing new equipment to produce better products will impress your customers while growing your business.
Always weigh the pros and cons before taking out a loan to avoid having debts. As long as it can help grow your business, it’s time to look at your loan opportunities to keep your business running.
Your business’s financial planning is a continuous process, and it’s important to do it properly to constantly meet your organization’s goals. Looking after your financial health is one of the best ways to ensure business sustainability and success.