[This week’s article was written by Julie Cheung.]
Every new business has the difficult task of establishing itself within the marketplace and making its mark against existing competitors. Small businesses have the added pressure of doing so on a tighter budget and with considerably less spending power. This is why they—more than anyone—must keep a tight rein on their money if they want to survive in these turbulent financial times.
Create a Plan
You cannot expect to know how to budget and spend if you do not first know where you are trying to go. Having a plan keeps your business focused toward specific goals, allowing the decision making process to be much more guided and considered. Having predetermined contingency plans for when times are tough also eliminates the risk of making poor, rushed decisions that could harm the business in the long term.
Keep Detailed Records
You should always know the financial position of your business so that spending can be adjusted accordingly. Detailed records of all money going in and out of the organization are an essential tool when it comes to making informed decisions, seeking funding from external sources, or striking up deals with potential business partners—as they will often request access to your records.
Keep on Top of Debts
Debt drains incoming money before it can be put to use within the actual business. Therefore, small companies cannot afford to have their money tied up in debts or they will struggle to keep operating. This is why all debts must be paid off in a timely and organized manner, freeing up finances for more beneficial purposes. Unnecessary debts, such as overly large loans or PPI on company credit cards, should be avoided where possible.
Get Suitable Funding
Many businesses will require outside funding in the early stages but what works for big organizations may not work for smaller ones. Using money from the owner’s personal savings, overdrafts, small loans, and even borrowing money from loved ones are some of the most popular methods of generating cash for small companies until they can stand on their own feet.
Protect Existing Money
Even in times when cash may seem abundant, you should protect it as much as possible by not spending without good reason. Drawing out a budget and sticking to it, no matter how much surplus money is available, is the best way to establish good monetary habits and allow a substantial cash reserve to build up for when it may be needed.
Keep Business and Personal Money Separate
Having completely separate bank accounts and credit cards for your business and personal lives will make keeping track of finances a much easier task, while also protecting you in the event of an audit. Bills, taxes, profits, and expenses will all be much more clearly defined and recorded when kept apart from personal matters, making bookkeeping and paperwork professional and organized.
Always Strive for Improvement
Getting your first few customers is often the biggest challenge and achieving this is something to be proud of. It should not, however, cause you to rest on your laurels and assume it will always be enough. The best way to ensure financial security is to maximize income and spread risk by having several customers you can do business with. Relying too much on a few sources can lead to a sudden halt in cash flow if they were to take their business elsewhere.
Julie Cheung works for Gladstone Brookes, a UK based company that assists consumers in making PPI claims. With nearly 38,000 clients in 2013 so far alone and an 87% success rate, they help reimburse the money from mis-sold policies.