5 Smart and Safe Financial Practices for Businesses
Business finance 101 has a little more rules to it than personal finance 101, but the general principles on being careful what you spend funds on are usually the same. The main thing to know when managing your company budget or discussing reports with your accountant is what you or your employees will invest in the short-term, and what you should be doing in the long run. But in either case, since every penny spent can affect your business considerably especially if it’s still small, you should follow five financial management practice tips to keep it in good financial health.
Make Sure You’ve Set Your Own Salary Wisely
As this article points out, you should be careful not to sacrifice so much of your own personal capital and paycheck to the point that you aren’t getting paid. For tax purposes and other reasons, it’s good to have your business funds and personal funds in separate accounts, but your salary can be recorded in the payroll documents. It is also a way to recoup some losses if the unfortunate happens and your business fails.
Come Up with the Right Tax Plan
While taxes are usually the biggest inconvenience to running a business, you can reduce your tax liability by having them spread out over monthly periods. It can help keep your business more ready to pay up than suddenly realizing a quarterly or annual payment must be made, and you’re unprepared for it. If you’re unsure which solution will work best, your accountant or tax professional can help you devise a tax payment strategy.
Know How to Collect Accounts Receivable
If your company makes its revenue mostly from billing customers, you want to make sure you know how to collect money from your invoices, so you aren’t running short on cash flow. Sometimes it’s good to incentivize customers with discounts on billing for signing up to make automatic payments on due dates. Also know when you need to be a little more aggressive about collecting from late paying customers. The bottom line is you don’t want to put your company short on cash.
Set Appropriate Limits on Business Credit Cards
Business credit cards can be quite a convenience for being able to make essential purchases, because at times they can offer more flexibility than bank loans and can allow you easy financial reports. Their interest rates can be quite costly, and without guardrails in place, they can be a significant liability on your company. You definitely need to limit the number of employees with credit cards as well as possibly limit credit card usage to those with a specific ranking. Even though well-defined credit card usage policy can help, sometimes shared company credit cards can easily become a financial trap. They can wreck the company budget and open the doors to employee fraud. Instead, look to other alternatives such as virtual credit cards, or you could even use gift cards or prepaid cash cards. Many big corporations have begun providing employees who travel frequently with prepaid cards for certain increments for food and other necessities to cut down on the risk of misuse.
Have Your Growth Plan Be Something Your Team Can Be Happy With
As you’re making or planning for new company expenses, growing your company should be about more than just more products and higher profit margins. You should look at investing in things that can make your employees happy and make for a more comfortable work environment such as a new building with office space, or spending more on employee benefits and incentives. Making your finances count for good employee morale is a highly important move for your company and internal brand equity.
The bottom line to running a business is even if you have innovation and ingenuity, those can only get you so far without sound financial management knowledge and practices. Just as with personal finance, it’s good to be able to meet business expenses with cash from savings as opposed to running in high debt. Before you use any loans or even perhaps opening your doors for business, you should talk to a business financial planner about good ways to use company money.
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