Studies show that nearly half of all American small businesses are drowning in major debt. So how do you stay on top of your finances and avoid becoming a statistic? These tips will help you keep your small business in the black.
Work to a Budget
Remember the golden rule of business finances: create a budget and stick to it. If you do this, there’s no reason to ever go into debt. Make sure that your budget is realistic and comprehensive. It should consider all your expenses and the likely income your business will generate. With this data laid out, you can assess necessary expenses and unnecessary spending, and identify areas where you might cut costs. Make sure to review your budget regularly to ensure it reflects the current state of your business.
Cut Costs Where You Can
As a small business owner, you don’t have funds to waste. Go beyond your budget and cast a critical eye over your business to find areas where you can trim the fat. Are you utilizing all of your office space? If not, you might consider subleasing unused portions to another firm. What about that equipment you bought when you established yourself but never really used? Anything collecting dust should be sold.
Research New Contacts
In the Internet Age, it’s nearly impossible to keep secrets. If a company or individual has faced payment-related charges, you can quickly learn about them. It’s also possible to get delinquency predictor scores online.
With so many resources at your fingertips, there’s no reason to be surprised by a bad risk. Research new clients and suppliers before committing to new business relationships. If you really want to work with someone who’s been unreliable in the past, you can take measures to protect yourself like requesting partial payment up front.
Use Accounting Software
You needn’t have an accounting degree to use simple accounting software programs. Programs like Sage are designed to be user-friendly enough for novices to operate. They’ll give you a snapshot of your finances and help you perform essential tasks like quoting, invoicing, and preparing expense reports. The moment you see your figures dipping down you can adjust your behavior accordingly, before your company goes into debt.
You might use the services of a professional accountant, but that doesn’t mean that a program like this doesn’t have a place in your business. Think of it as a day-to-day money manager that can help make your accountant’s job easier at tax time.
Many accounting programs also allow you to check your figures at any time from any device, unlike traditional hardcopy books that are only accessible when you’re in the office.
Keep Track of Invoices
Your accounting software will help you keep track of your invoices, but that doesn’t mean you should get complacent. It’s vital to invoice clients regularly and ensure invoices are paid in a timely fashion to inject funds into your business.
It’s a good idea to set payment terms, such as your preferred payment method and timeframe, when signing contracts. Reprint these at the bottom of your invoices to eliminate any confusion. Email your invoices to clients to ensure they receive the payment notice in a timely fashion, and never hesitate to send reminders when the bills are overdue.
It’s a good idea to delegate debt collection duties to one of your members of staff, particularly if you’ve employed someone with experience in debt management and is able to answer questions like “What is an IVA?” If you have clients that refuse to pay up, you may need to get a debt collection agency involved.
Keep a Paper Trail
Record keeping is crucial for small business owners. Make sure to keep copies of your emails, letters, and text messages. When you speak to business contacts over the phone, jot down the time, date, and subject matter of each call.
This paper trail will help protect you should payment disputes arise, especially if the matter goes to court. The more information that you can provide to support your case, the more likely it is that you’ll recover your cash.
Employ these tips and you can ensure your small business doesn’t go into debt.
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