It is king when you’re contracting, self-employed or running a successful small business. 65 percent of failed businesses say they closed down because they didn’t know if they were making more than they were spending. It's also called "running out of money," and it will shut you down faster than anything else.

There are a few things you should do as a small business owner to stay on top of your finances. First, you should pay yourself. As a small business owner, it’s easy to put everything back into the business but remember, you are part of the business and you need to compensate yourself as much as you pay others. 

Establish internal financial protocols

Even if it’s as simple as dedicating set time to review and update financial information, can go a long way in protecting the financial health of your business. A quick and easy way to check your spending is to perform a ‘cash flow analysis’. In other words, to compare your total unpaid purchases to the total sales due at the end of each month. If the total unpaid purchases are greater than the total sales due, you'll need to spend more cash than you receive in the next month, indicating a potential cash flow problem. Set aside time each day or month to review and monitor your books, even if you’re working with a bookkeeper. It will allow you to become more familiar with the finances of your business. This is an obvious practice, but a very important one.

Billing

Every business owner has at least one client that is consistently late paying its invoices. Your business needs to operate at a healthy level on a day-to-day basis. If you’re struggling to collect from certain customers or clients, it may be time to get creative with how you bill them. You may need to have an incentive for prompt/early payment or a penalty for late payment.

Return on Investment

Small business owners should always be wary of where they spend their money. Measuring expenditures and return on investment (ROI) can give you a clear picture of what investments make sense and which may not be worth continuing. Focus on the ROI that comes with each of your expenditures as you can lose money on irrelevant or bad spending if you don’t. Know where you are spending your dollars and how that investment is paying off. If it isn’t paying off, cut back and spend a bit more on the areas that do work for you and your business. If you have trouble saving for your quarterly estimated tax payments, make it a monthly payment instead. That way, you can treat tax payments like any other monthly operating expense.

Don’t be afraid to borrow money

This infusion of cash may allow you to purchase equipment or grow your team. You can also use loan proceeds to boost your cash flow and thus face fewer issues paying employees and suppliers on time. However, don’t take out loans with interest rates that you can’t afford. You need to maintain good business credit so pay off all your debt funding as soon as possible.

Always keep an eye on the future

It’s important to set aside money and look into growth opportunities. This can allow your business to thrive and move in a healthy financial direction. Ultimately you will create more value for your business. You need to be looking and planning at least five years into the future.

BFA can help you stay on top of your business spending as well as providing you with a regular health check of your business, advice and support for any new ideas you may have.