Do you feel like you need some clear financial tips for small business owners to sign-post the path ? Do you feel overwhelmed by the ongoing inflation, price hike, sky-rocketing cost of living and all the other extreme difficulties that have impacted so many people and businesses in the recent while?
Running a small business is rewarding, but it comes with various challenges, finances being one of them – especially when the geopolitical landscape has gone wild and numbers simply aren’t your thing.
Whether you are an entrepreneur struggling to keep your small business afloat or a seasoned business owner trying to navigate unpredictable economic times, handling finances for your business is crucial but can feel daunting. In this blog post, we will share our financial tips for small business owners on how you can manage your finances during periods of economic uncertainty.
Create a Financial Plan
One of the most effective ways to navigate any kind of uncertainty is by creating a plan. A financial plan helps you forecast your business’ income and expenses and make decisions influenced by the right information. Knowing your short as well as your long term goals is a helpful place to start. From there you can evaluable your current financial position and then identify any risks your business might be up against.
Having management accounts delivered to you timely and regularly will allow you to understand your business performance, helping you make decisions at every stage such that your business be not impacted by hard times. You will see where you have opportunities to reduce costs and maximise your best income streams. You will know where to make improvements and where to invest more.
Have Financial Reserves
It is always good to set aside a portion of your revenue to create financial reserves, not only in anticipation of uncertain times, but also to tap into when you need to invest in a new project, improve a segment of your business or simply be on top of your tax bill.
Having a financial reserve can help you cover sudden expenses, unexpected costs or a downturn in business. I recommend aiming to have three to six months’ worth of expenses set aside as a reserve.
Stress-test your business
Stress-testing your business means developing a set of scenarios and projecting what the impact would be on your business. Consider how your sales, cash flow and stocks would be impacted. This can help you prepare for potential financial challenges and make appropriate adjustments to your budget, stock, and marketing strategies.
Again, as mentioned before, having management accounts delivered to you timely and regularly will allow you to understand your business performance, helping you make decisions at every stage such that your business be not impacted by hard times. Testing various scenarios is a significant part of management accounts.
Maintain good relationships
Relationships matter, no more so than in uncertain times. Doing what you can to keep in favour with your bank and suppliers as well as with your customers will help you if you face an unforeseen situation.
Banks are more willing to lend money to businesses with good credit scores. Similarly, good relationships with suppliers can help you negotiate better payment terms, discounts and extended repayment plans to help you manage your cash flow better.
Maintaining good relationships with your customers means continued business as well as good referrals for getting new customers.
Stay up to date
Finally, staying up-to-date on regulations and laws relevant to your business is essential at all times. But avoiding costly mistakes might seem even more important when the economy feels more difficult. A great accountant will always keep you up to date on anything that will impact your business finances.
Invest in steady growth
It is important to set aside money and look into growth opportunities which can help your business thrive and move in a healthy financial direction, such as hire the right people, develop a good customer retainer scheme, reduce risks (again… management accounts will be a massive help !), focus on your customer experience.
Business owners should always keep an eye on the future.
Have a good billing strategy
Every business owner has a client that is consistently late on their invoices and payments. Managing small business finances also means managing cash flow to ensure your business is operating at a healthy level on a day-to-day basis. If you are struggling to collect from certain customers or clients, it may be time to get creative with how you bill them.
Too much cash tied up in unpaid invoices can lead to cash flow problems, which is one of the the main causes of business failure. If you have a chronic late-paying customer, instead of badgering them with repeated invoicing and phone calls, try a different approach. Change the payment terms such that they receive a 2% discount off the total bill if they pay early (and set a clear payment term such as “within 10”).
How can LAS Accounting help ?
Managing finances during uncertain times can be challenging, but it is not impossible. These financial tips for small business owners are meant to show you exactly that. By getting the support of an expert accountant, you have the best chance of navigating financial uncertainty and taking care of your financial health. Preparing for the future is always more advantageous than reacting to it, so start planning your business’ financial future today.
If you would like to talk to me about how I work with small businesses like you please get in touch.