Financial knowledge and decision-making skills help businesses in many ways. Companies can make sound and informed financial decisions through critical thinking and problem-solving.
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However, not every business owner has adequate financial literacy. If you have limited business finance experience, this list of tips may help you manage your business finances.
Budget and Stick to It
Budgeting is one of the most crucial pillars of your business’s overall success and security. It helps you in planning and controlling your business finances. A budget plan also ensures that your business meets its objectives, funds its current commitments and future projects, and makes more informed financial decisions. Conversely, if your business has no control over its spending, planning will be futile, making your objectives infeasible.
When creating a budget, remember that it’s not a one-time exercise but an ongoing process. Your business expenditure and revenue could change from time to time. So it’s deemed necessary to revisit your budget or recreate it at least monthly, quarterly, or whenever there are changes in your business. Above all, stick to your budget to keep a close eye on your objectives, which can be financial, strategic, or operational.
Employ Tax-Saving Strategies
As a business owner, there are several tax-saving tips you can take advantage of, but among the most worthwhile is claiming the 199A Qualified Business Income Deduction. It allows non-corporate taxpayers to reduce up to 20% of their QBI (qualified business income). Before availing it, accomplish your personal tax return and then calculate your business’s net income, which includes capital gains, dividends, and non-business interest income.
Another way is to take out fast and personal payday loans. They’re considered a liability, so the loan and interest aren’t taxable. But they could be tax-deductible if used for business. The good news is that a portion of its deductible interest can still be proportional if you use a personal loan both for personal use and business. It’s best to consult a tax advisor to avoid misunderstanding.
Set A Good Billing Strategy
Every business has chronic late-paying customers. It’s inevitable, but excessive cash tied up in unpaid invoices can result in cash flow problems. Remember that managing your business finance means controlling your cash flow so that your business operates well daily. If your business continues to have unhealthy cash flow due to late invoices and payments, it will eventually lead to failure.
If you’re consistently struggling to collect payments from specific customers, it’s time to change your way and get creative on how you approach them. Rather than badgering them with incessant bills and phone calls, opt for billing strategies that call to action and give them a sense of urgency, such as “2/10 Net 30.” It translates to a 2% discount if the amount due is paid within ten days. Otherwise, customers should pay the due amount in full in 30 days.
Practice Good Financial Habits
Practice saving, accurate tracking, and cash flow dynamics. The COVID-19 pandemic has taught everyone that saving can future-proof our finances. Be sure to save without putting your operations at risk. Learn how to keep your books well to identify trends and fluctuations in your spending patterns. Lastly, understand your cash flow. Consider long-term yet worthwhile investments, such as customer loyalty programs.
Getting strapped for time and money, being inferior to technological capabilities, and other factors that you think could make your business subpar to others aren’t good reasons for not having internal control. Implementing internal financial rules protects your business’s financial health and mitigates business risks, so it’s crucial for you, as a business owner, to establish it. If not, it can lead to employee fraud, theft, and other legal problems.
Invest in Business Insurance
While it may sound like another expense, business insurance is a company’s finance lifeline in the long run. No matter how great you’re at budgeting, cash flow dynamics, or managing your tax and invoices, you can never predict what may happen in the future and how it will affect your business. What you can only do is prepare for potential risks to mitigate future damages. One way to do so is to have your business insured.
Business insurance doesn’t only cover damages that can otherwise be out-of-pocket costs caused by accidents, natural disasters, and lawsuits. Being able to be protected from severe financial hardships can spare you time, money, and even anxiety as well. Having the right business policies can guarantee your customers and contractors that you take risk management seriously, helping you build good business credibility.
Sound financial management and understanding of your company is the secret to the success of any business, no matter how big or small. Without it, even the most operational and potentially profitable businesses will fail.