According to the Small Business Association, 30 percent of new businesses fail during the first two years of being open, 50 percent during the first five years, and 66 percent during the first 10. Those statistics are certainly eye-opening and startling, especially to small business owners trying to ensure they are one of the few that can make it.
While you’re managing your inventory, hiring and managing employees, perfecting customer service, developing your brand, and working in the trenches – who is balancing your books and cash flow? Without strong knowledge of finances and the ability to create and monitor a budget, you may be slowing killing your business.
Cash flow levels. Incoming cash flow, expected debits and future projections are all tell-tale signs that you need to consider when hiring employees, increasing inventory, or buying new equipment. If you don’t have a firm grasp on your financial reality, you have a rough path ahead. Understanding your finances now and in the future is imperative to success.
Inventory. Every business has inventory – whether you sell products and goods, manage a food establishment, or simply have office supplies for internal use. Don’t let uncontrolled inventory levels drive down your profits. Utilize your ordering and sales history to project the accurate amount of inventory that you’ll need. Excess inventory is a burden on your business and can drain your finances if the items become obsolete, perish/expire, cost too much up front, or if you end up discounting them to clear space.
Money in the bank. No matter what your current financial situation, you always need to have reserves in order to fund any unexpected expenses or weather through the slow season. According to SCORE, most financial experts recommend keeping three to six months of operating expenses in the bank.
Accurate budgeting and reports. Budgeting can help you rest-easy knowing that your business has the funds it needs to operate now and in the future. Different projection models can help you determine what your financial situation would be in best-case or worst-case scenarios.
Taxes. Paying your taxes on time is critical to avoiding any late fees or penalties. Tax tables change periodically depending on which state you operate from, so keeping up to date on new city and state tax rates is equally important.
Many small to medium business owners or managers don’t have the time or expertise to manage all aspects of their finances and budgeting and many don’t have the funds to hire a full-time employee with the level of knowledge needed. That’s why so many people turn to an outside fee-accountant that handles all their finances and projections professionally. This ensures the business owner can get back to handling their business without the added stress of trying to understand accounting and reporting.