“Dammit, Jim! I’m a doctor, not an accountant!” is a retooling of Dr. Leonard McCoy’s famed Star Trek catchphrase, and it could be quipped by virtually any small business owner. Whether you’re a designer with a boutique, a chef with a restaurant, a doctor with a clinic or any other type of budding entrepreneur, learning the basics of accounting and financial management are essential if you want your business to thrive.
Luckily, there are financial management tips that have worked through the years and across multiple industries.
9 Financial Management Tips that have Stood the Test of Time:
1. Realistic Budgeting
A realistic budget is almost as important as your business plan itself. A few hundred or thousand dollars here or there adds up, and if you haven’t accounted for those expenditures, your working capital can quickly run dry. Go into spending with your eyes wide open – know what your fixed costs are (payroll, rent, utilities) and keep your variable costs (production supplies, commissions, travel expenditures) as reasonably low as possible.
2. Separate Personal and Business Finances
While it may be easy to muddle together personal and business finances, it should be avoided at all costs. Even if you’re spending from the same account, record the transactions separately. This ensures that if you need business financial records to apply for a loan or entice an investor, the details you want are easily accessible. Additionally, it saves money by ensuring that you don’t overlook claiming a business expense on your tax return because it was buried in your personal records.
Separating your personal and business finances is just the first step. All of your business’ finances need to be well organized. You should know where your invoices, credit card statements and other financial documents are; even the records tracking your inventory supply and payroll projections should be organized and complete. If needed, you can leverage these records to take out loans against your inventory or to fund your payroll.
4. Wise Use of Credit
Whether you are borrowing against your inventory, taking out a line of credit or accepting capital from a silent partner, utilize credit wisely. Are the funds helping your business grow? Do the interest rate and terms promote repayment or will the loan lock your business into debt? Do a risk-reward analysis on every type of debt your business incurs and use debt strategically to grow your business.
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