No matter where your organization falls in the business lifecycle, managing the financial health of your company will always be crucial for success. Even the biggest corporations in history have run into cash issues. It can happen to anyone. In fact, issues with cash flow are the leading cause of business failure.
Luckily there are ways to improve. Being proactive is the most effective way to avoid any financial issues within your organization. In this guide, we will walk through some of the best ways to save, raise, and manage your business finances. Here are some money management tips for owners at several critical stages in the business lifecycle.
Launch Stage: Money Management Tips for New Business Owners
Throughout this piece, we will focus on tips for business owners throughout the business lifecycle. In this section, we will discuss entrepreneurs who started their organization during the pandemic and afterward.
New businesses struggle with money problems more than any other category on this list. Businesses younger than three years old will benefit from these tips.
Establish a Legal Business Entity
Simply claiming you are open for business doesn’t mean your company is recognized as a legal entity by the government. To make your business legitimate, you need to choose a legal business structure and apply for a license through the SBA.
Making your business official will allow you to access financial resources available to business owners. After legally registered, you will be able to apply for both federal and state business tax IDs, which will also give your company an employee identification number (EIN). Your EIN is extremely important because it serves as your business’s social security number.
Having an EIN is crucial to qualifying for and building your business credit. Many business owners don’t know business credit exists. To start building business credit you need to be a legal business, open business bank accounts, and pay all vendors on time. Once you take all these actions, your business credit should start to rise.
Separate Personal and Business Finances
If you applied for and set up an EIN, then you’ve already taken the first step to splitting your personal and business finances. EINs allow you to build business credit, so you can apply for special financial products in the future intended for business owners.
Besides building your credit, you should look into opening a business bank account and signing up for a business credit card. Having both a separate bank account and card to use for your organization will give you better visibility into your company’s financial health.
Don’t fall into the trap of using your business credit card for personal expenses. What can start as a one-time emergency can quickly become a habit.
Don’t Be Afraid of Loans
As a new business owner, maintaining a healthy cash reserve can be tough. This has been especially true in the pandemic due to unpredictable market conditions. In the early stages of your business, it can feel scary to take on unwanted debts.
Taking out a loan may seem unnecessary but the cash gained from a loan can help immensely. The boost of capital can build up your savings, pay for new equipment, a new hire, or your vendors, when you don't have the cash on hand.
The benefits of taking out a personal loan this early in the business lifecycle often outweigh the risks if you borrow responsibly. If you still have reservations, consider meeting with a local business advisor or loan expert to become as well-versed as you can in the world of financial offerings.
There are more money management tips and tricks new business owners can use. What about established businesses that are beginning to grow? Read on to learn more.
Growth/Expansion Stage: Money Management Tips for Scaling Businesses
Grow Your Team
Investing in your business while it’s in a growth phase is the best way to continue growing and will help propel you forward. You can invest in your company in multiple ways but bringing in strong employees will yield the most value in the future.
When looking to expand your team, think critically about the areas where you need the most help and which positions will drive the most growth. Once you have targeted your areas of opportunity, it’s time to start recruiting.
One thing to note when hiring: fill the highest position of each department first, before moving down toward entry-level jobs. Without a manager to shape the department, other new employees won’t be able to fully tap into their potential.
If you don’t have experience recruiting or don’t have time to devote to an extensive search, consider using a recruiting agency or staffing service to help you get started.
These agencies are experienced in finding the right people for the right position. Leaning on their help can improve your chances of finding the best candidate for the job.
Invest in Technology
The reliance on technology across every industry continues to rise with every new advancement. Even simple tasks like taking a payment or obtaining a contract signature have evolved in just a few years. Office workflows can be automated, secure, and efficient if you have the right technology in place.
For newer small businesses, the cost of building a tech stack may be prohibitive. As a growing company though, tools usually position your company to flourish by making tasks easier and better serving the customers you need to build your business.
The type of tech you decide to incorporate into your business should be driven by your industry needs. A pizza shop, for example, would have more of a reason for bringing in a delivery app than an insurance agency.
Payment communication tools are essential for every business. FLOW Technology is one such tool that allows users to send invoices, receive payments, and sign and send important documents.
As your organization grows, so too will your transactions. Having a secure and efficient workflow for your payment process will be extremely important.
Other pieces of tech to consider bringing into your operation are:
- Accounting Software
- Project Management Software
- Audio and Visual Equipment
As your business grows, investing in the right people and technology will help keep you on track to bring your business to the next level. Just remember, these investments need to be made intelligently. Overspending can quickly turn a once budding business into a failing one.
Shake Out/Decline Stage: Money Management Tips for Struggling Businesses
Conduct a Cash Flow Analysis
The majority of businesses that close do so because of cash flow problems. If your business has recently fallen on hard times, a cash flow analysis will provide more information about where your losses are coming from.
Cash flow is the net amount of cash and cash equivalents being moved in and out of your business. Anytime a customer purchases your goods or services, cash flows into the business. Anytime you make a purchase (utilities, salaries, materials) cash flows out. Your organization should have an archive of cash flow statements you will use to conduct your analysis.
When reviewing your cash flow statements, they should be broken down into three main categories: operational, investing, and financial activities.
Here are some of the common transactions that would be associated with each category:
- Buying or selling property
- Buying or selling equipment
- Capital Expenditures
- Loan funds or payments
- Cash received from investors
- Cash paid to investors
During your cash flow audit, you should begin to better understand financial trends across your business. If you’re struggling, scaling back spending is a must and your cash flow analysis can help you identify where to make effective cuts.
Consider Outside Investments
It can be hard to admit you need help, especially when it comes to money. Just remember that nearly everyone will experience financial hardships at some point in life.
Financial assistance from an outside investment can give you the jump start you need to thrive. Ask for help as soon as you’ve determined you need it, before your financial troubles are beyond repair.
Personal Loans and Grants
Both loans and grants can ease financial burdens when your business needs the help. The same benefits of a loan that apply to new businesses can be helpful for struggling companies too. Grants are also excellent for declining businesses as they offer a lump sum of money with no strings attached.
However, you will need to meet certain criteria to qualify for lending. Criteria can range from industry, to years in business. Learn more about government-backed grants here.
There are a million reasons that a business may fail. If you are struggling, don’t panic. It isn’t too late to pull yourself out of the hole you are in. Practicing these money management tips will improve the state of your business and may be all you need to get back on your feet.
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