Cash and money are vital for any business, large or small. But for smaller companies, financial planning and sensible decision making is far greater than it is for bigger companies. Ultimately, if a large corporation makes a huge blunder or suffers a massive drop in the stock market, it’s the director at the top of the tree that falls on their sword, and the company continues – possibly with some job losses. But financial mistakes can put a small business out of the picture almost overnight. Despite this, many small businesses operate financial plans that most accountants would deem as crazy – we’re going to run through these standard errors right now, and help all you small business owners get things back on track. Let’s take a closer look.
The vast majority of small businesses do all their accounts themselves, including their tax returns. It’s easy to see why. After all, hiring an accountant or bookkeeping professional costs money that many small companies can ill afford. But the reality of hiring accountants and bookkeepers is that they actually save you money in the long-term. The little amount of fees they charge you to take care of your company’s finances pales into insignificance when held against the massive tax breaks and efficiencies they will find for your business. If you want to save money, hiring a tax professional or financial planning expert will pay for itself dozens of times over across the course of a year.
Focusing on the top line
Small business owners also have a tendency to put all their focus on making more sales. Of course, there is nothing wrong with this as gaining new customers is a sure sign that your business is growing. And, business owners might be led to believe that this can only mean more profits. But the top line of making sales and boosting your revenue is only one part of the equation – it’s the bottom line that will serve you with more purpose and better results. Increasing your bottom line by cutting back on your spending and production costs is an easier and more efficient way of improving your profits, so this should be your primary focus. If you cut your cost of sale by enhancing your bottom line, then you can start seeking more sales. And the profits you make on each of these sales will be far greater now than if you hadn’t improved the bottom line first.
Buying the best
When you are a small business owner, it’s fair to say that you might be suffering from a slight inferiority complex. Your more established rivals probably have a beautiful office somewhere, unlimited budgets for marketing, and tend to attract the best candidates. But this isn’t an area you should try to compete – as you can’t possibly win. You don’t need to buy all the latest and greatest equipment to try and show customers you are successful. You can get just as much value out of an old, used PC as you can an expensive, brand new Apple Mac, as an analogy. Only spend money on what you actually need, and don’t waste it on equipment, software, or marketing tactics that bring your company zero value.
The company credit card
When things start going well for small businesses, there is a great temptation to start spending – but on all the wrong things. Your business credit card might be pulled out at business meetings, or lunches out. You might invest in an excellent drinks machine for the staff canteen – or maybe even a ping pong table or video game units for the chillout staff room. Flash, stylish, super comfortable sofas are another common sight in many businesses these days – but you have to ask yourself, what is the value of these things? You are far better off accounting for every penny and investing it in business critical things, rather than trying to make yourself look like a bigger company than you actually are.
A final point – don’t assume a good year means you are ready to invest in large-scale expansion. Many small companies spend fortunes on infrastructure investment, but when it becomes apparent they don’t have the customer base, after all, they will end up going bankrupt. Don’t fall into the trap, and avoid temptation until your figures justify growth. Otherwise, you will end up in very precarious position.
If you have any small business finance tips to share, please feel free to leave them in the comments section below. Good luck – and keep those finances under control!