If you are managing a small company, you don’t really have to hire a financial consultant just yet. You shouldn’t necessarily know what golden rules of accounting are as following these simple rules will help keep your business financials healthy and reach your next growth milestone in no time.
1. Chart your cash flow
To keep your business stable, you have to look at the amount of money your company receives and spends, so-called inflows and outflows. It’s worth looking into cash flow tools that will help you visualize these crucial metrics. These tools usually represent cash flow as a graph.
By looking at your cash flow graph, you can analyze what months have brought the most profit and where you witnessed a dip in revenue or had too many expenses to remain profitable.
You should be referring to your cash flow report quite regularly – if you notice some red flags, you can analyze what’s going wrong and interfere before a plunge in revenue starts to harm your business.
It’s obvious that every company has better and worse months in terms of revenue. It’s the average of six months or even a year that matters. Even if your expenditure is huge, it’s the difference between revenue and costs that matter at the end of the day.
2. Keep an eye on expenditure
You can grow your revenue by either increasing revenue or regulating your costs. The more established company you become, the less some categories of expenses will matter to you.
However, when growing your business from the ground up, every small expense counts and if you want to be the 5% of startups that don’t fail (because 95% usually run out of business), you have to cut the expenditure wherever it is redundant.
Have you subscribed to some online SaaS tool and been charged $100 monthly or do you believe you could find a more affordable office space in your area? These are the types of expenses you have to rethink.
While there are obvious expenses that can be curbed, there are also those costs you shouldn’t necessarily look to avoid. If you are in a service business, think of the people who work on driving your business growth, work on clients’ projects, report to them, or sell your services. If you want to scale fast, it is worth investing in people.
3. Automate document flow
Document automation is possible with a dedicated software in place that uses templates to help you build routine documents faster. Thanks to smart fields, you can easily pre-fill repetitive elements by inputting the data only once. As a result, you can create routine documents faster and reduce engagement of your legal team.
Using document automation can help save time and money you would normally spend on paperwork – a boring task no business owner would love to do. By adopting a document automation software in your company, you can reduce time spent on inputting data in contracts, reduce human error, save money on printing documents and sending posts.
You can automate non-disclosure agreements (NDAs), master service agreements, employment offer letters, and many more. By introducing this technology, you can spend less money on tedious legal tasks, and hire a business attorney for more complex cases.
4. Invest in marketing
You can’t grow your business by serving the same clients – expect some of them to churn at some point. That’s why to protect your business (and employees) from cash flow turbulence, work on keeping your sales pipeline full.
When focussing on extending or just launching your marketing strategy, identify the right channels through which you can reach your potential clients. You can invest in PPC ads – Google and Facebook Ads – or grow your online presence more organically.
If that’s the case, consider checking out how you can implement small business inbound marketing and start gaining clients by writing content and publishing it online.
Depending on what business you are into, even snail mail can be the channel to consider – for example, this makes sense if you offer plumbing services in a small town. Some marketing channels can work for you where they don’t work for others.
5. Separate business and personal finances
Keeping business and personal finances separate is one of the most common bookkeeping tips you can find online. Your accountant will remind you about it even more frequently!
If you want to avoid costly mistakes and the situation in which a tax office would knock your office, define a clear line between your business and private accounts – it’s similar to creating a company’s merchant account.
While there are certain expenses you can deduct (also, the categories for deductible business vary across countries), you should always check twice and never abuse the system.
If you have chosen to create a limited liability company (LLC) or corporation, you have probably done so to protect your personal assets. In case you get some creditors chasing you and asking to pay for the unpaid invoices, the court can rule to seize your personal assets if your personal and business accounts are not separate. This way, you lose the protection you wanted to have when setting up an LLC.
6. Follow up on unpaid invoices
If you manage to follow all best practices for keeping your finances clear, you might still fail at the point where things don’t depend on you, but on your clients. Having most of the clients not pay for your invoices, can kill a business or significantly endanger its cash flow.
That’s why it is crucial to follow up on the invoices your clients don’t pay on time. There are a lot of templates online you can copy, so you don’t have to think too much about what such reminders should include.
Sending reminders shouldn’t be stressful at all if you are using invoicing software for small business accounting – such reminders are sent automatically after 1,3,7, or whatever day you specify after the deadline for paying an invoice has passed.
If this tactic for getting clients to pay faster doesn’t work, you can always consider calling clients directly – it might happen that the invoices you send end up in promotions or spam folders, so it won’t harm to check twice with clients before taking action.
Wrapping up
It doesn’t take much time and effort to monitor your company’s financial health. By introducing the tips we have mentioned in the article, you can make sure that you don’t suddenly run out of funds or get into trouble with authorities. However, remember these rules work if you follow them as a routine, not a one-off exercise.
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