Your customers are the reason you’re in business. And while they’re keeping you up and running, the financial success of your enterprise rests solely on your shoulders. If you’re struggling, it’s time to look at your money management processes.

If you’re sending out invoice reminders and praying that clients will pay so your business can make it to next month, it’s time to get independent.

We get it, you can’t run your business with a ton of open invoices, but make 2022 the year to stop stressing and get ahead of your business’s money management processes. After all, financial illiteracy comes at too high a cost.

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Quick & Dirty: Business Finances

Let’s start with the basics. As a business, you have two options: debt financing or equity financing. Debt financing is a more familiar and to-the-point process. Your business borrows money and promises to pay it back with interest.

With equity financing, someone is putting money or assets into your business in exchange for a percentage. Think of the show Shark Tank.

To decide which option is best, ask yourself these three important questions:
  • How quickly do I need the money? Debt financing allows you to access money anywhere between a few days to a few weeks. Equity financing will take a bit more time due to the negotiating and legal work that comes with the process.
  • How important is control? If you’re looking to maintain control over your business, debt financing is the better option. However, if you can stand to release some of that control for the sake of not repaying a high-cost loan, equity financing is worth considering. Just be sure to watch the percentage split to avoid being out-voted during decision-making with investors, or worse — getting voted out of your own business.
  • What do I even qualify for? With debt financing, keep in mind that lenders look at the five C’s on credit when figuring out if you have the ability to pay back what you borrow along with interest. Those are capacity, capital, collateral, conditions and character. Equity investors care about your history of starting and running successful businesses along with your plans for the future.

Create a Budget and Follow It

There are a lot of things to stay on top of when you’re running a business; however, the budget should be at the top of that list. Why? Well, because we know you want a successful business and not crippling debt.

Having a budget helps you make informed financial decisions and figure out where to reallocate spending. More importantly, it’ll help you land more funding for your growing business.

While keeping your budget specific helps your business thrive, that budget is only as good as the owner who follows it. Start by creating a priority list of your business’s needs and wants. That way you can determine what fits into your plan.

But, how do you create a budget?
  • Look at your revenue. Tally up how much money your business brings in and take note of where exactly it’s coming from.
  • Examine your fixed costs. This is anything that is the same cost from month to month like building space, internet, employee salaries. Double-check your expense report to make sure you’re not forgetting anything.
  • Next, tack on those expenses that don’t come with a fixed price tag. These items like your utilities, travel costs and sales commissions.
  • Add on any future one-time spending like a new laptop or an annual software subscription renewal.
  • Bring it all together to get a comprehensive look at your financial standing for that month.
Total Income - Total Expenses = Net Income

Save Money for a Rainy Day

Emergency funds are a must when trying to navigate seasonal fluctuations and unexpected setbacks. Make sure you’re prepared to avoid the stress of last-minute scrambling when problems arise.

To get your business’s emergency fund in place:
  • Know when your slow seasons are so you can pace your finances.
  • Place a percentage of your sales in your emergency fund.
  • Keep saving, especially when business is booming.
  • Make sure you consider different emergency types and diversify your savings. For instance, have dedicated saving accounts for various situations that may occur.
  • Ask for help from an advisor when it gets overwhelming.

Pay Yourself

When you’re running a business, it’s easy to invest what you earn back into the business. That’s understandable. That capital can help your business through growing pains but, it’s not necessarily the best thing for you. Yes, YOU!

Keeping your business’s finances in a healthy place is important but you can’t afford to neglect your own finances, so make sure to pay yourself. Whether it’s through an owner’s draw or payroll salary, make sure you compensate yourself accordingly and pay yourself as often as you pay others.

Why? On the slim and unfortunate chance that your business doesn’t work out, you would’ve never paid yourself to have the finances to support yourself when you need it the most.

Reinvest in Your Growth

One of the most important things you can do to better your business is to set aside money and intentionally look into growth opportunities. Keep your mind focused on the future, especially if you want to attract top talent to work for your business.

Reinvest your money into your business by:
  • Implementing innovative technology to reduce employee burnout, help your company stay organized and cut downtime on manual processes.
  • Diversify employees to allow more opportunities for fresh, creative ideas and to improve productivity.
  • Invest in your employees by offering classes that help them grow personally and professionally.

Overall, this helps improve the level of service your company provides while also raising employee retention.

Have a Source for More Financing

Don’t let loans psych you out. If you need a loan at any point in your business, look into your options. Sometimes loans are needed to pay down unnecessary expenses and focus on longer-term investments for your business, like new equipment.

Just be sure to refer back to your budget to make sure you’re on track and keep an eye on your spending.

59% of entrepreneurs who apply for a loan use it to expand their business.

Keep Your Credit Squeaky Clean

Building your business credit should be high on your priority list — you can’t afford to neglect it. Your business is going to grow and you’ll need the right numbers when it’s time to take out a loan to buy another building or just get additional insurance policies. Poor business credit can make this a difficult process.

According to Gerri Detweiler, education director for Nav, many small businesses aren’t aware they even have a business credit report. “There’s no requirement that anyone get your permission before they check your business credit,” she explains. “They don’t tell you if they are turning you down because of your credit, so most business owners don’t have a clue.”

Build up your business credit in 7 steps.
  • Register your business with the appropriate government entities to get an EIN, or employer identification number.
  • Keep your information correct with all three credit bureaus.
  • Check if your suppliers offer trade credit. If so, have them report your payments to any of the business credit bureaus.
  • Make sure your payments are on time or, even better, early.
  • Only borrow from lenders that report to the credit bureaus. Yes, there are lenders that don’t report.
  • Get a business credit card and pay it off in full every month. If you’re offered a 0% APR period in the beginning, be sure to take advantage of it.
  • Pay attention to your public records and keep those clean. You don’t want to have negative marks looming on your report.

Perfect Your Billing Strategy

How’s your cash flow? If it’s suffering because of a client or two who never fail to pay their invoices late, we hope the first few tips can help you build a financial buffer and stop relying solely on these few customers to get it together.

More importantly, this tip can hopefully get you into better habits when it comes to collecting payment for your services.

Sometimes you have to get creative when it comes to billing your customers. Let technology do the work and find a reliable end-to-end client experience platform to conduct your entire estimate-to-payment process.

Can you imagine whipping out your laptop, phone or tablet to draft an estimate that gets approved on the spot? What about sending an SMS message that allows customers to pay from their phones? Amazing — we know.

Keep in mind, there’s also a host of other ways to collect your payments like the boss you are, so educate yourself on your options.

Make Tax Payments Manageable

Sometimes it’s hard to plan for the long-term expenses when you’re trying to make it from day to day. If quarterly tax payments feel like they come out of nowhere and leave a sudden hole in your pocket, try something new. Take smaller bites by turning them into a monthly payment.

As long as you’ve paid enough but the end of the quarter, you won’t be charged a penalty fee. Spreading out those tax payments will allow you a little more flexibility. Just remember to add it to your budget.

Keep Your Eyes on the Books

Whoever said ignorance is bliss was not talking to business owners. Make sure you’re monitoring your books. By now, I’m sure you’re no longer using paper documentation so make sure the finance software you choose works for you. Stay familiar with the finances of your business and check on it regularly.

If you find that it’s taking too much time out of your day, hire someone to take over. Someone has to make sure there’s no wasteful spending or committing an accidental financial crime.

It’s not uncommon to accidentally commit a financial crime. It’s as simple as accidentally providing the wrong information on documents. Math errors and oversights can occur when filing information, which is all the more reason to have a dedicated person to ensure you’re not committing any finance fraud. It will cost you big in the long run.

Examine How You Measure ROI

Looking at your return on investment in the big picture sense is great. While we support that fully, it’s also a must that you look at the ROI on each expenditure. This practice will give you a better look into what is and isn’t actually working. If there’s not enough payoff in one area, cut back on that and put that funding towards more promising initiatives.

Practice Good Habits

Quick question: Do you have a financial protocol? Is there a calendar in place to review the fun and not-so-fun financial findings of your business? By keeping a set calendar with time blocked off to review this information, you can reduce risk and fraud attempts.

Regularly schedule time on the calendar to:
  • Review and update the business’s financial information with your team.
  • Conduct a risk assessment to identify to see what’s most likely to affect your company.
  • Have an internal audit to ensure your business’s cash is accounted for to avoid legal problems.

Plan, Plan, Plan

We can’t say it enough. Having a financial plan will help keep your business on track but, don’t just plan for this year. What do the next 10 years look like for your company? If you can’t look ahead, you run the risk of falling behind your competition.