You don't have to be an economics expert to establish good financial habits for your business. However, if you want to see continued growth, you do need to learn how to be financially savvy.
Experts have been studying the data collected from small businesses, and they have found that the companies that consistently follow certain habits vastly outperform the ones that do not. To help you become a more successful small business owner, this article will outline a few of the key ideas that you should implement to keep your finances in the best possible shape.
Become Better at Budgeting
The idea of budgeting may seem overwhelming, especially if you have a business that doesn't have consistent expenses every month. However, it's important to remember that a budget isn't a concrete thing, especially if you're new to creating one.
It's important to create a monthly budget, even if it ends up not being entirely correct. Financial planning for small business owners is one of the best habits to cultivate. Simply make your best estimates and compare your actual expenses to the estimated ones at the end of the month. This will help you see where your money is going and better inform your budgeting in the future.
Take Advantage of Tax Breaks
This is something that many small business owners feel guilty about, but the data shows that those who maximize their deductions are vastly more successful than those who don't.
You should have an experienced accountant who is meticulous in writing off as many expenses as possible. If you feel like you're "cheating" or "gaming the system," just remember that this is completely legal, and businesses of all sizes are doing the same thing. You worked hard for your money, so there is no sense in throwing it away paying extra taxes if you don't have to.
Separate Out Your Tax Funds
It's important to make sure that you set aside an appropriate amount of money to pay your state and federal taxes on time. In that same vein, you also need to make sure that you keep that money separated from the rest of your income.
Remember that this tax money belongs to the government, which means that it technically isn't yours. If possible, it may be helpful to set up an account just for tax funds so that you're not tempted to dip into them at any point throughout the year.
Figure Out the Best Way to Structure Your Business
Often, small business owners feel like it's simpler to operate as a sole proprietorship, especially when they first get started.
However, it's important to think ahead and plan for potential expansion. If you plan on growing your business to include employees or additional locations, you will likely want to look into other business structures. You can utilize online resources to help you decide which type of business structure is best for you, or you can speak to a lawyer and discuss your options.
Take a Proactive Approach to Your Debt
Short-term debt can be acceptable, and for many small businesses, it may be unavoidable in the early stages. It is incredibly common for small businesses to acquire some amount of debt, but it is less common for business owners to have concrete plans in place to resolve this debt.
Successful small business owners will develop a strategy for consistently eliminating debt before they even take it on. If you already have business debt, you should work to develop a plan for minimizing the principal within a reasonable amount of time.
Stick With What You Know
It can be tempting to try to expand your product or service offerings or start up new and exciting projects within your business. However, this is often nothing but a huge drain on your energy, finances and resources, which can hurt the overall success of your company.
Experts recommend remaining focused on your original business model and doing everything you can to build up your brand one goal at a time. Devote your resources toward establishing a solid brand foundation so that you can build on it later with flashy projects and innovative ideas.
Streamline What You Can
Even if you are the only person running your business, you should remember that your time is valuable. Wasting energy on inefficient operations not only leaves money sitting on the proverbial table, but it also takes away from your ability to create and can leave you feeling burned out.
When you take the time to think through and implement more efficient processes, you'll notice that your business runs more smoothly and that you have more energy to pursue your passions. Remember that it's OK to delegate responsibilities, and don't hesitate to use automation and technology to your advantage.
It's Never Too Late to Create Good Financial Habits
Whether you are still in the process of getting your business off the ground or you're several years into pursuing your dream, it's never too late to improve your "financial hygiene." Even if you already follow some of the habits listed above, it's always possible to grow and improve.
Set attainable goals for yourself, and don't be afraid to ask for expert advice so that you can learn how to be financially successful in your small business.
Written by Hiscox Blog
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