Running a small business is rewarding, but it comes with various challenges, finances being one of them - especially when everything around us keeps reminding us we are in a cost of living crisis. We are worrying at home, we are worried for our businesses. Add to the fact that numbers might not be your thing and you’ve got a perfect storm brewing and it tends to lead us to burying our heads in the sand and winging it.
Whether you're struggling to keep your small business afloat or a seasoned business owner trying to navigate this unpredictable landscape, handling finances for your business is crucial but can feel daunting. In this blog post, we will share our tips on how you can manage your finances better.
To Plan
One of the biggest precursors for stress is not being in control. An effective way to stay in control is to know where you are and to plan. A financial plan helps you forecast your business's income and expenses and make decisions influenced by the right information. The results may not be pretty for you when you first do this but burying your head in the sand will not help you gain control. Knowing your short and long term goals is a helpful place to start, from there you can evaluable your current financial position, and identify any risks your business might be up against. Risks in this context are anything that could negatively impact you or your business.
Most accountancy software will allow you to run reports and track your performance, helping you make decisions at every stage. You’ll see where you have opportunities to reduce costs and maximise your best income streams. A bookkeeper can help you learn to use and love this kind of software.
To Save
It is always good to set aside a portion of your income to create a savings pot in anticipation of uncertain times. Having a financial reserve can help you cover sudden expenses, unexpected costs, or a downturn in business. This is also great to do if you have a seasonal business. I recommend aiming to have three to six months' worth of expenses set aside. You can start slowly, but the quicker you can do this, the less stressed you need to be if things take a wobble.
To Stress-Test
Stress-testing your business means developing a set of scenarios and projecting what the impact would be on your business. Well what does that mean? Consider how your sales, cash flow (money in money out) would be impacted if something were to go wrong or suddenly change because of something outside your control. This can help you prepare for potential financial challenges and make appropriate adjustments e.g how much you keep in your business savings pot.
It would be great to stop hearing about the impact of Covid, but we can learn alot from how planning for the unforeseen would have helped a lot of businesses stay afloat when the cash stopped coming in so quickly and unexpectedly.
To Maintain Relationships
Relationships matter, no more so than in uncertain times. Doing what you can to keep in favour with your bank and suppliers will help you if you face an unforeseen situation. Banks are more willing to lend money to businesses with good credit scores. Similarly, good relationships with suppliers can help you negotiate better payment terms, discounts, and extended repayment plans to help you manage your cash flow better. And finally by having really good customer relations, building trust and loyalty, it will help you if things take a down turn, they will likely be more understanding and be there when things pick back up.
To Stay Up To Date
Finally, staying up-to-date on regulations and laws relevant to your business is essential at all times, but avoiding costly mistakes might seem even more important when the economy feels more difficult. A great bookkeeper or accountant will always keep you up to date on anything that will impact your business finances.
Conclusion
Managing finances during uncertain times can be challenging, but it is not impossible. By creating a financial plan, establishing financial reserves, stress-testing your business, maintaining good relationships with your banker and suppliers, and getting the support of an expert bookkeeper or accountant, you have the best chance of navigating financial uncertainty and taking care of your financial health.Preparing for the future is always more advantageous than reacting to it, so start planning your business's financial future today.
If you’d like to talk to me about how I work with small businesses like yours, check out the various ways you can contact me HERE.
Take care of yourself!
Becky