The successfulness of your small business is determined by its capability of producing profit, which is directly determined by your ability to manage your finances in the most efficient way possible. Sometimes, it’s not the quality or the appeal of the product that counts, but the way in which you handle all the payments, pricing, cash flow and investments. Here are some relevant tips to keep in mind.
Ask all the important questions
The first thing you need to do is ask some important questions regarding your own finances, as well as the direction that you believe your business is heading in. First of all, you need to know your current net worth, in order to see your options and determine the amount of money that you need. Second, you need to set your goals but also determine the amount of time that you’ll have to complete them in. Ideally, you would set short-, medium- and long-term goals and ask the question of what is realistic to expect in this time span. Once you know the answers, you’ll be ready to proceed to the next step.
Prepare for moments of crisis
The second thing you need to look out for is the inevitability of crisis, and there are two types of unexpected circumstances that you’ll have to prepare for. The decline or stagnation of your business is one, whereas rapid expansion is another. Healthy cash flow is a solution to both of these scenarios. In the first scenario, this helps you pivot your company and restructure it so that it returns to the right path. In the latter scenario, it allows you to meet an increase in your workload, thus drastically improving your business structure.
In order to achieve this, you need to A) learn how to anticipate tight cash flow, and B) set up a cash flow planner. When you need this money, you need to know exactly where you can get it. This usually involves applying for another loan, selling equity in your company, selling invoices or selling company assets. The latter is probably the worst of the four, seeing as how it simplifies your corporate infrastructure leaving you behind.
Diversify your investments
Just like when it comes to personal finance, reinvesting your profit is definitely not your safest choice. Therefore, what you need to do is diversify your investments by A) putting your money into an emergency fund, B) covering your debts (prioritizing those with the highest interest rate) and C) creating passive streams of income. It’s also a smart idea, when investing, to look for commodities instead of just considering stocks or cryptocurrencies. Now, while most people focus on standard commodities such as gold, silver and diamonds, investing in palladium could be just as reliable and lucrative.
Pay for everything online
Paying bills online in 2019 is no longer a revolutionary concept, yet, it’s still horribly underused by entrepreneurs all over the world. First of all, it saves you quite a bit of money, seeing as how paying an average bill costs you about $12 in fees, while you can do the same online for just $0,5. Other than this, all of your online payments are recorded and easier to access, whereas finding your receipts might be somewhat more difficult. Just pay for everything online and you get a simpler payment model, a more elaborate reporting system, as well as the advantage of not having to travel and wait in line to pay your bill.
Make sure you get paid
One of the biggest mistakes that small businesses make is allowing their customers to get away with debt. You see, credit payments allow your customers to afford items that they otherwise wouldn’t be able to buy. The problem with this lies in the fact that not all of your customers are as conscientious, and even if the payment method is automated, you won’t be able to charge a monthly credit payment from an empty account.
The first way of ensuring this doesn’t become a problem is to minimize the risk by checking the credit history of your customers. Alas, this is only a viable choice in a scenario where the value of the purchase is high enough to justify the extra effort. Another method you can resort to is contacting a debt collection agency and outsourcing debt recovery to them.
Review your pricing strategy
The last things you need to consider are the cost structure of your products and your pricing strategy, both of which play a pivotal role in both your financial status and the future of your company. These approaches are vastly different, from pricing at a premium (pricing more than others to show the higher quality of your product/service) all the way to pricing for market penetration (pricing less to get your first customer base). The thing about these two strategies lies in the fact that they, sometimes, imply that the price will change in the future; yet, this way, you already know that these changes are controlled and lead towards better management of your small business finances.
At the end of the day, you also need to look at effort and time as resources that can be assigned with a certain financial value. In the business world where time is money, even this is a factor worth considering.