Business revolves around money, and money revolves around a successful business. Therefore, you can be a super cool expert in your industry, you can be able to sell anything and to anyone, you can be a guru of brand building, customer relations, and human resources management, but unfortunately, all this will be ineffective in the long run if you have no proper financial habits. In this article we want to help you, therefore we provide a list of the right habits of handling money for small business owners.
Carefully Analyze Each Figure of the Financial Report
If you have been convinced throughout your life that mathematics is not for you, well, starting the path of business development, you will have to change your mind. Mathematical and accounting data is what reflects the state of your business best. And the analysis of this data will give you the opportunity to understand which way you are moving, and what decisions of your business strategy require changes or instant responses.
Therefore, the first correct financial habit is careful record-keeping, tracking, monitoring, and analysis of every penny that is spent or received.
Pay It Forward, and Only Then Pay Yourself
It is obvious. As soon as you hired people to your team, you automatically decided to share part of the responsibility for their lives with them. This means that now you are also partially responsible for their well-being, good attitude towards you as an employer, and for food on their tables.
Therefore, there are several rules here.
- The work of your workers should be rewarded first. There is nothing more important than people who share the values of your business and are ready to invest their time, energy and knowledge in its development. Even taxes and payments to creditors are less important than paying your team – if they leave, you will not be able to cover these costs without their contribution.
- You must understand exactly how much you earn. It’s wrong to take all the profit, minus necessary payments. It’s right to pay yourself a certain amount, and only after all obligatory payments are made.
Invest Part of the Profit Every Time You Receive It
Business development is impossible without investment. And the best option is to invest part of the profit each time you receive it, but do not ask for a loan every time when it seems to you that your business needs additional support. We will talk about loans in the next paragraph, but for now, let’s dwell on the habit of investing a certain part of the profit each time after receiving it.
Of course, for this initiative to be successful, you need a business plan and a strategy for developing your business – and then you can draw up an investment strategy based on these two documents. Therefore, the next rule is to make reasonable investments on an ongoing basis, and once again analyze the result and return on investment.
Do Not Borrow Money If You Are Not Sure of Your Decision
Sometimes the business environment takes on different shades, and it becomes obvious that the business urgently needs additional investments at the expense of borrowed funds. And in this case, you should also remember several important rules at once.
- Do not borrow money without a clear understanding of how you will give them back. In other words, never borrow a larger amount than the value of all your assets and liabilities combined – this is a contingency strategy.
- Do not borrow money if you are not sure about the lender, or even at the start of the discussion of loan conditions, you understand that you have to endure too much bureaucratic red tape. This may mean that by the time you get consent to grant a loan, the need for this may simply disappear. It is much more profitable, quick and easy to borrow the required amount on the Lendgenuis website and not report on your plans for them.
And Reduce Debt Proactively
If, nevertheless, the decision to take a loan for business development was inevitable, then, in this case, you will have to develop another good financial habit. It’s the habit of paying off debt before the deadline and accruing the highest interest, of course. Of course, the loan conditions will depend on the type of business loan, the country in which you operate and the financial institution that has lent you the required amount, but globally, the habit of repaying debt as soon as possible will be appropriate in any situation.
How to do it? That’s right, you will need to redistribute expenses, and it is possible that you will need to start by cutting your own wages to pay off the debt. Plus, your entire business strategy should be re-optimized taking into account the amount you need to pay back.
Always Have an Emergency Fund
Business is unpredictable, as is our whole life. Therefore, it is extremely important, firstly, to have a business strategy in case of the worst outcome, and secondly, a reserve fund. Yes, just for this case, too. The reserve fund will allow you to leave the game softly and smoothly. Of course, this will be very stressful, but it is much easier to deal with it if your head does not hurt because of the thought of money.
In the most ideal case, your reserve fund should be greater than or equal to your expenses for the year – in an optimistic forecast. And it is even better to have an extra reserve in addition to the main one – in case an unexpected situation catches you at the moment when you will need to repay the loan.
Continuously Improve Your Financial and Business Literacy
In this article, we have listed six basic financial habits that every business owner should develop in himself. However, in fact, it is possible to list a much larger number of recommendations.
And besides, the business environment also leaves its mark and makes business owners from different fields of activity manage money in one way or another. Therefore, it is extremely important to constantly improve your financial and business literacy so that every turn of events becomes a new opportunity for you and not an occasion to think that your business is on the verge of extinction.
- Pros and Cons of Financing a Business
- How to Raise Money to Finance a Franchise
- 12 Tips for Getting Your Bank Loan Approved
- Here’s When Personal Loan Would be the Best Resort for You
- Understanding the Kinds of Capital for Your Business