Building a business takes time and effort. While many entrepreneurs and startup founders were able to thrive within the first few months of doing business, some weren’t able to sustain their operations long enough to accomplish short-term goals.
One of the reasons why these businesses fail has to deal with how much they are spending each month to stay afloat. According to the Small Business Administration, roughly 29% of small businesses fail due to insufficient capital. Coupled with growing operational costs, these problems set up small businesses for massive failure.
With this in mind, business leaders need to maximize available resources and reduce minor expenses. Proper planning makes all the difference, so if you are starting a business this year, here are a few tips to help you make the most out of your finances.
1. Come up with a detailed business plan
Failure is guaranteed when you lack a solid business plan. Having one allows you to decide what steps to take that will bring you closer to your goals and help you explore growth opportunities. A business plan also lays out the amount of capital your business needs and how much it needs to earn to survive.
Without a business plan, you could end up focusing on activities and spending on tools and campaigns that won’t produce a high rate of return. When making a business plan, consider including your vision for your business and a realistic timeline on how you are going to achieve this vision.
In addition, make sure to do extensive market research so you can anchor your business goals on actual consumer attitudes and demands. From this, you will know the easiest route for your business to take.
2. Secure the right amount of funding
According to an article on BusinessNewsDaily.com, microbusinesses need at least $3,000 to start. It’s a small price, but for people who want to start from scratch with little to no funding, securing that much money can be complicated. The best option for many is qualifying for a small business loan.
The SBA offers a wide range of financing programs that cater to different business needs. The Microloan program, for instance, can loan up to $50,000 for expanding your business. When it comes to building a starting capital, you may opt for a 7(a) loan which gives you up to $5 million in funding.
When picking a business loan, it’s important to know if you can afford the interest payments you will be making. On average, you will be paying at least 3% interest each month over the life of the loan. This amount is excluded from your operational expenses, but you need to factor that in when you are determining the financial health of your business.
3. Use the right tools for managing your finances
Financial tracking remains a chief concern among small businesses. Knowing how much money goes into and out of the coffers is crucial to determining the financial health of an enterprise, but the amount of documentation complicates the need to come up with accurate income and spending metrics. Without a process for tracking capital and operational expenses, your business could be hemorrhaging more money than you thought.
Fortunately, there are a number of financial tools you can use to keep track of all finance-related components. Many of these can help streamline payment, billing, and accounting processes. Other platforms can also help with tracking tax deductions and generating inventory valuation summaries. While they require a learning curve to master, these tools can help ease the tediousness of financial management without setting aside the need for greater accuracy and transparency.
4. Get advice from a professional
Apart from using the right software, you also need to get the right people who can help you interpret raw financial data and make better decisions in line with your business’s goals.
As your business expands, you may have to recruit a licensed CPA who can help you decide the right legal structure for your business, ensure that your business complies with standard accounting processes, and come up with data-driven forecasts to chart your business’s financial health.
A CPA can also help you save tax dollars by determining deductions and protecting your business from tax audits which could mete out hefty penalties. To ensure that your business doesn’t run into such hurdles, getting a CPA could be the best decision you will make.
5. Double down on R&D efforts
Making sure your business thrives doesn’t stop with keeping your finances in check. You also need to invest time and money in developing new products and services. After all, consumer behaviors change over time and you will need to fund research and development efforts so your business stays engaged with the market.
Aside from launching innovations, R&D efforts are also tax-deductible. So long as your small business generates gross receipts under $5 million, you can use your R&D tax credit to offset payroll taxes. In a way, investing in R&D benefits your business by saving you more money and increasing the number of products and services you’re selling.
6. Be wise when it comes to spending on marketing
Marketing is a top priority among small businesses that want to stand out and compete for more customers. It can also be costly if it’s not done right. While social media and email marketing provide cost-effective ways to spread brand awareness, the success of these campaigns will rely more on execution rather than the budget.
For this reason, it’s important that you maximize the cost of marketing your business by focusing on the quality of your messaging. You wouldn’t want to spend on bad marketing strategies that are costly and inimical to your business’s reputation, so consider anchoring your marketing goals to available resources and to your overall business plan. That way, you can support your business’s continued growth and nurture a solid client base that brings new opportunities to the table.
If you want your small business to thrive, you need to keep it financially healthy. Use these tips to help your business find valuable opportunities.