For many small business owners, managing costs and dealing with unexpected expenses is a common theme when it comes to running a business. For a business to succeed, it must meet its financial obligations, which include payroll, inventory, rent, utilities, insurance and a number of other expenses. Unfortunately, many small businesses succumb to mismanagement, financial stress or unforeseen events and are forced to close.
In 2019, close to 23,000 small businesses filed for bankruptcy. So what does it take to ensure that your business is in optimal — or pink — financial health? Lucky for you, we’ve put together some key considerations, along with useful resources that every small business owner and entrepreneur should factor in to ensure that their business is on solid financial footing.
Financial Management Resources for Your Small Business
We all know the story of the three little pigs, right? Well, the pig that managed to keep his house safe from the Big Bad Wolf was the one that built a sturdy structure on a strong foundation.
All businesses need a strong financial foundation to help weather the disruption caused by unforeseen events that will jeopardize a business. Whether it’s an unexpected expense due to equipment failure, structural damage, issues with production or service or a pandemic, these unanticipated setbacks can be costly. Having the right financing and access to funds can prove critical in getting a business up and running again.
In addition to having a liquidity management strategy and the ability to meet the day-to-day obligations of running your business, it is also important to set aside money for future investment or a “rainy day.” Options can include tapping into family and friends for investment and support, obtaining a bank loan and establishing other lines of credit or applying for a government loan or grant. Here are some top resources you can use to ensure your business has pink financial health.
Crowdfunding is one way that a business can raise money through the donations of individual investors that want to support your business. Pooling together individual investments from a large group of people — friends, family and other supports — can provide a windfall of cash to a business that has an immediate financial need or may be looking into growth and expansion opportunities. Popular crowdfunding sites for businesses include Wefunder, Indiegogo and Kickstarter. If you are a woman entrepreneur, try IFfundWomen.
U.S Small Business Administration Programs
Also known as the SBA, the United States Small Business Administration is a federal agency that provides assistance to small businesses and entrepreneurs by offering government-backed loans and grants to businesses looking to expand or in financial need. It also offers financial advice to help you grow your business.
Loan Guaranteed Programs provide reduced risk and easy access to capital through lending partners that offer long- and short-term working capital and fixed-term rates and microloans that can assist and meet the needs of your business.
If you've been using your personal bank account for your business, consider opening up a separate business bank account for better financial health. In addition to keeping track of payments and expenses, a business bank account can also provide access to funding through credit and lending programs.
Having a bank account can establish and build your credit. Once your business establishes a good credit history, obtaining new and larger loans will become easier. And just like a personal credit score, your business credit score will make it easier for you to qualify for loans and receive better loan terms.
Maintaining a good relationship with your bank and lender can help you navigate through a number of financing issues and also provide a level of support and service. Working with your bank or a small business lender like Kabbage and Fundbox can help ensure the financial well-being of your business.
Many entrepreneurs and business owners rely on credit cards to help meet their financial needs and obligations. However, unmonitored use of credit cards can come with a host of issues, including high interest rates and hefty penalties for missed payments. Paying off credit card debt can also become a huge challenge when coping with a decline in revenue, slow down in business or unforeseen expenses. Managing debt is key to maintaining pink financial health and stability in the business. Although credit card use is a common and often essential financial option to meet expenses, there are ways to make sure that you do not get crushed by piling debt.
Pay off your debt. This will help you avoid paying interest on your purchases, which can affect your bottom line.
Monitor your spending. Make sure that you are paying for the essentials. Also keep tabs on your expenses. Many credit cards provide itemized accounting that can help you better organize when preparing your taxes.
Look into refinancing your consolidating your debt. If you are already carrying a large balance or have multiple cards with high interest rates, considering a balance transfer to a lower rate and combine your outstanding balances under one card and one payment.
Whether it’s business or personal debt, carrying outstanding balances and juggling payments can add to your stress levels. In addition to refinancing, another option is to pay off credit card debt by applying for a low-interest bank loan.
Finance Tools and Software
Running the day-to-day operations of any business can be consuming to say the least, or even chaotic at its worse. To run a business efficiently and effectively, you’ll need the right tools to cover things such as tracking your expenses, managing inventory, handling accounts receivable/payable and managing payroll. Luckily there are a number of resources available today to help business owners stay organized and on top of things.
Gusto can help you with payroll, benefits and PTO and time-off requests.
Expensify offers an expense management service to help track your travel business expenses.
FreshBooks, QuickBooks, Wave and Xero are accounting software that can help you keep track of your money and manage your expenses. Good accounting software should also allow you to generate financial reports, handle recurring billing and invoicing needs and help with tax preparation. In addition to accounting tools, many providers also ensure data security and offer accessibility options.
SOS Inventory and Scout are inventory software platforms that help track your inventory and provide demand forecasting, ultimately helping you increase your revenue and decrease the amount you spend on product.
Utilizing the numerous user-friendly apps and programs can offer the control and oversight needed to run your business, monitor your spending and help you grow.
Getting Financial Management Help
The best approach to a healthy business is to have a good plan, and most of the time that plan relies on a strong balance sheet with access to capital to help support expansion plans and dealing with downturns. Every business plan should also allow for flexibility, including pivoting and retooling of strategies and the ability to change course depending on the situation.
Operating a business can be a rollercoaster ride, but the best resource is sound financial management tips and advice from a professional. Whether it’s getting your bookkeeping in order or preparing for taxes, Incfile's Business Accounting and Bookkeeping services can help ensure your business has pink health for as long as you're in business.
Peter Mavrikis is an author and editor with over 25 years of experience in publishing. He has worked as the Editorial Director for Barron’s Educational Series, as well as Kaplan Test Prep, where he ran the test prep, foreign language, and study guide divisions. Peter has also written several books on history, exploration, science, and technology.