As an entrepreneur, you’re constantly striving to create the perfect conditions to help your business succeed. This probably includes having a good workplace staffed with effective employees, using the right equipment, and developing and maintaining beneficial relationships.
But, the most important step may be acquiring access to proper financing.
A business, by nature, needs money to operate. Without proper cash-flow management, even the strongest businesses will suffer. In fact, poor management of cash flow was a factor in the failure of an estimated 82% of small businesses in 2018. Access to working capital is also a concern, and limited working capital can put your business in a potentially dire financial situation. Here, we’ll discuss some key business practices to set your business up for success and avoid many common pitfalls.
We cannot emphasize enough the importance of practicing accurate and precise bookkeeping to starting and maintaining a successful business. Your records should accurately reflect all transactions happening on a day-to-day basis. They should also include business expenses, business-related mileage, and records of any loans or investments. These records will paint a clear picture of your income, expenditures, debts, and accounts receivable. You can then use this information to track your income, pay any liabilities, and file your tax returns correctly and on time.
At the end of the day, nothing matters more as a small business owner than getting paid for the work that you’ve done. If you’re not being paid on time, neither are your employees. Your equipment doesn’t get serviced in a timely manner, rent and utility bills go unpaid, and so on. It is imperative that you have an invoice tracking system in place. It’s also a good idea to create an invoice at the time you deliver your product or service, rather than waiting until the end of the month. This can help speed up your invoice clearance and put more money back into your business faster.
As technology becomes more and more integrated with both our business and personal lives, it benefits entrepreneurs to be early adopters, embracing modern advances so as not to be left behind in a changing economy. Using accounting software (there are many diverse options available for every level of need) can not only save you accounting costs, it can improve the accuracy of your financial records and reduce the risk of theft, fraud, or embezzlement.
Generally Accepted Accounting Principles, or GAAP, are accounting techniques that are accepted as standard procedure in the financial world and are used by leading auditing and accounting firms. By following these principles, you can make quicker financial decisions and instill confidence in a lender or investor by demonstrating your ability to raise funds. There are many creative aspects of entrepreneurship, but your accounting practices should absolutely be standardized.
As we discussed in the beginning of this post, having enough money to continue funding daily business operations is one of a small-business owner’s primary concerns. It’s very possible that your business will, at some point, encounter temporary working capital difficulties. If and when that happens, do not dip into the capital set aside for equipment or assets to temporarily supplement working capital. Doing so can kick off a vicious and potentially unending cycle that can cost your business its competitive edge as you drain your ability to invest in necessary assets.
So, what can you do instead? A good option may be to apply for a working capital loan to help finance your short-term needs. This is a type of loan that is typically short term (about a year in duration) and offers flexible EMI (equated monthly installments) to make repaying the loan easier. Such a loan can help keep the lights on in the event that finances get tight.
As you grow your business, take stock of your accounting practices and daily operations. It’s always a good time to set goals for where you want to go in the future and create new habits that will help your business continue to grow and thrive.