Running a business is hard enough, but when you add in the financial stress of owning and operating your own company, it can become overwhelming. It’s important to be financially responsible as a business owner so that you can spend less time worrying and more time running your company.
What’s more, being financially responsible for your company gives you the ability to properly manage where the money is going.
Tips on Managing Your Finances as a Business Owner
Create a Budget and Stick To It
If you can’t create a budget for your business, then how are you supposed to decide where the money should go? Whether it’s through Microsoft Excel or any number of other apps available, creating an accurate budget will help you take control of your finances. The two most important numbers in your budget are how much money is coming in from customers and how much of it is going out as expenses.
By keeping track of those two numbers, you’ll be able to make smart business decisions for where to place your money and what you need to cut if something goes wrong.
Know Where Your Money Comes From & Where It Goes
Your budget will tell you where your money comes from and where it goes, but that’s only half the picture. When big expenses come up, like an expensive machine or a new hire, you need to be prepared for how much it will affect your budget. Knowing what you need in case of emergencies is just as important as knowing where your money is coming from.
Know What You’re Charging Customers
There are lots of business owners who simply don’t know how much they should be charging for their products and services. Charge too low, and you won’t make enough to stay in business. But charge too high, and customers will go elsewhere. There is no magic number when it comes to pricing your products and services, but your overall goal should be to have a profit margin that’s as high as possible.
Cut Out What Isn’t Necessary
Some expenses are unavoidable, but there are lots of expenses out there that you might not even realize you’re paying for. For example, do you work in an office that has a refrigerator full of soda? Do you have subscriptions to magazines that no one reads? The best thing to do is go through your expenses and cut out anything that isn’t 100% necessary for the running of your business.
Save Up For Emergencies
Emergencies are unexpected, unavoidable, and come at the worst times possible. But being financially prepared for emergencies can make a huge difference in how well your business performs in a crisis. For example, you don’t want to have to scramble around looking for financing when an expensive piece of equipment breaks down and needs to be fixed immediately. That’s why it’s good to save up enough money so that you always have something available in case of an emergency.
Focus on Paying Off Debt
Sometimes, emergencies come around more often than you might think. If you have high-interest credit card debt hanging over your head, it’s probably time to pay that off first before you try to save up for anything else. Not only will paying off your debt free up money that can be used elsewhere, but it will also give you a big boost in financial stability.
Take Advantage of Tax Deductions
One great perk about owning a business is that you can write off a lot of your expenses as tax deductions. In fact, you could write off anything that’s “ordinary and necessary” to the running of your business. That means stuff like office supplies, professional development classes, the cost of shipping customers their orders, etc… But make sure to keep careful track of all these receipts because one misplaced receipt can cost you your write-offs.
How to Manage Your Personal and Company Expenses
While a lot of this article has been about how to manage your business expenses, you also need to make sure that your personal and company finances don’t mix. That means keeping separate bank accounts for personal spending and the business’ expenses, so there’s no risk of accidentally withdrawing money from one when it should go in the other.
One example of a personal expense is mortgage payments, which should not be mixed with your company’s mortgage payments. They are two completely different mortgage payments, so it should go without saying that you shouldn’t mix them up! Hiring an accountant for your business and employing the help of a mortgage broker or lender can make it easier for you to separate your personal and business expenses.
As a business owner, you need to learn ways on how to grow your profits and succeed. Saving, investing, and checking your credit are some ways you can go about it. This way, you can ensure a much brighter future for your company.