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More than 50 percent of small businesses fail before they hit the five-year mark, and many aren’t lucky enough to last even that long, the Small Business Administration (SBA) reports. The odds of success for any small business are slim at the outset, and finance management plays a significant role in the company’s long-term viability. If you’ve entered the small business world without a background in finance management, you need some expert resources and finance management tools to stay on the right track. Here are five tips to keep your finances in check and your business in the black:
Choose Your Funding Wisely
You might have several options available to you when it comes to funding a business: Self-funding, bank loans and venture capitalism are the most common. Each has its own advantages and drawbacks.
Self-funding comes with the fewest strings attached—you can be flexible on repayment and get interest-free lending. Bank loans come with low interest rates and some limited flexibility, but financial institutions can get aggressive if they grow concerned you can’t repay the debt. And venture capitalists can provide large amounts of funding, but their actual support can vary widely, and the repayment to investors is typically much greater than what a bank will charge.
Consider how each option affects your personal and business finances, especially several years down the road. A bad investor loan could look good initially but create excessive financial strain later, putting your company at risk.
Set up a Funds Reserve
Just as with personal finance, businesses need the security of a rainy day fund. You can set up this fund in one of two ways: by devoting some of your initial funding to a reserve or by building it up over time as revenue starts to roll in. The SBA encourages entrepreneurs to make a habit of funding this reserve right from the start. You probably want to have a business reserve and a personal reserve set up, since you’re undertaking a fairly high-risk venture. Keep in mind that any funding of that personal reserve will create a correlating tax debt, so you’ll need to account for this in your own finances.
Take Out a Business Line of Credit
A small business credit card or another line of credit can help you handle daily expenses while establishing your credibility with the bank. Resolve to run all your spending through the card, thereby consolidating your expenses into one source. This will make accounts and invoices easier to track, and you can rack up business spending rewards in the process.
Opt for DIY Expense Accounting
Invoices, expense reports and other financial records-keeping are an essential aspect of running a business. Thanks to software solutions like FreshBooks, business owners can handle these tasks on their own without investing in an accountant’s services. FreshBooks is available as both a desktop or mobile app solution, and it simplifies invoicing by automating certain steps, organizing different accounts and linking up to other business solutions. The app is available for $9.99.
Keep the Company’s Financial Health in Focus
Your company’s financial health tells you how your business is progressing and what spending options are available to you. Software like inDinero tracks all financial happenings and charts them in an easy-to-read format. You can review daily spending, incoming revenues, insurance accounts, advertising budgets, funding reserves and other financial details all at once.
This comprehensive approach can help you forecast your future viability and opportunities, improve your decision-making and build toward a brighter future. InDinero is available at different price levels depending on the number of transactions your business handles in a month—anywhere from free for less than 50 transactions to $99.95 for unlimited monthly transactions.
Amy Jones Amy is a residential zoning agent for the city and has a background in real estate and finance.