Editor's Note: Take a look at our featured best practice, Five Stages of Business Growth (25-slide PowerPoint presentation). This presentation introduces a framework for entrepreneurs to use when building and navigating their business from a nascent, startup state to an enterprise with a global footprint. This framework, called the 5 Stages of Business Growth, is based on the fact that all businesses experience common [read more]
4 Financial Habits Every Business Owner Should Develop
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The failure rate for small businesses is surprisingly high. In 2019, the Small Business Administration published statistics showing that almost 50% of all small businesses permanently close their doors within five years. In order to increase their chances of finding success in today’s competitive market, small business owners should first make sure that they are ready to take on such a huge responsibility and develop good financial habits.
With that said, we’ve listed below some of the best financial practices that can help small business owners better understand their finances and steer their companies towards success.
Regularly Review Your Finances
In order to understand the scale and frequency of your business operations, it’ll do you well to conduct weekly and monthly financial reviews. Every business has a rhythmical pattern of income and expenses — and being aware of this can help business owners determine if their business is headed towards success or will experience hardships in the immediate future. Some of the best financial reports that can give you an insight into the current and future state of your business are balance sheets, income statements, cash flow statements, and the accounts receivable aging report.
Cut Down on Unnecessary Spending
Running a business costs money. If you want to maximize your profits, you need to have better control over your business expenditures. A post on The Balance Small Business lists some key areas in your business operations where you can slow down on spending, such as staffing, office space, advertising, advertising, and insurance. Another way to cut down on unnecessary costs is by properly managing your inventory. By analyzing your inventory, you can compare what’s coming in to what’s going out — and subsequently determine unnecessary spending that you can easily eliminate.
Aim to Never Be Late When Paying Your Dues
Your business pays a ton of monthly expenses in order to run operations smoothly — whether it’s permits and taxes or insurance and utilities. If you fail to pay these monthly dues on time, you may damage your business’ creditworthiness and find it difficult to secure loans. For this reason, it’s best that you place safeguards in place to avoid making late payments. A feature on how to improve your credit score by Petal Card notes that scheduling monthly payments directly from your bank accounts will ensure that your bills are paid on time. In addition, it’s also best to be organized and set reminders in your phone calendar, or download a budgeting app that will send out alerts when your payments are due. By never being late with your monthly dues, you avoid paying late payments, keep your business’ creditworthiness intact, and make sure that your operations run smoothly.
Maximize Your Tax write-offs
As a business owner, you should be aware that the state and federal government hands out tax benefits to eligible businesses. These tax write-offs and deductions reduce your taxable income and the amount you pay the government. The money you gain by taking advantage of tax write-offs can be put back into your business and help support your expansion plans. If you’re not yet aware of what tax write-offs and benefits your business is eligible for, you can seek advice from a trusted accountant or tax professional in your area.
Adopting the financial habits we’ve listed above can make you a more effective business owner and help you push your business towards the path of success. If you want a more detailed insight on how monetary mindfulness can impact your business, be sure to read our previous post Why Money is Important to Business Success.
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About Shane AvronShane Avron is a freelance writer, specializing in business, general management, enterprise software, and digital technologies. In addition to Flevy, Shane's articles have appeared in Huffington Post, Forbes Magazine, among other business journals.
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