By: Barbara Davidson

Being the boss of your own company is a milestone, but it also entails being vigilant as you manage all the moving parts of your enterprise. As a small business owner, it pays to be smart about your finances. Before you become stable in a competitive landscape, you’ll first have to map out the road ahead and secure your financial standing.

Small business budgeting is one part of the equation. Successful entrepreneurs know when to cut back on expenses and invest in others, when to negotiate, and when to sit back and watch the money grow. Whatever venture (or adventure) you find yourself in, it’s bound to be a learning experience. 

Are you ready to embark on your journey as an entrepreneur? Here are 12 tips on how to manage and keep your small business finances in order. 

1. Set clear financial and strategic goals

It’s one thing to plan the day-to-day operations of your business; it’s another to set a clear vision of what you want out of your investment in the long run. Don’t lose sight of your future success simply because you’re caught up in present-day hustles. 

Be sure to identify growth targets and the metrics that will define your success. Set a goal and timeline. For example: becoming a half-a-million-dollar company within three years. This will also help you create a strategy for seeking additional funding, building out your product line, or marketing extensively.

2. Plan for expenses and keep costs to a minimum

Knowing the nature of your industry and the demands of your business right from the start will lead you to better financial decisions. Identify production, operational, payroll, and marketing costs, as well as some contingencies, and plan for them at least a year in advance.

Learn to keep costs to a minimum by spending only on essentials and negotiating the terms of your contract with suppliers, partners, and affiliates. Develop a budget that accommodates these expenses even in lean months. It also helps to make financial forecasts by factoring in possible challenges ahead.

Look at certain expenses and what you could bring down. For example, you might want to look at the cost of your business phone or phone and get a better smartphone deal. Paying too much on your phone contracts is burning money.

3. Separate business and personal finances

A rookie mistake that small business owners tend to make is to mix up their personal and business finances. Failing to open a separate business bank account can prove disastrous if the cost of doing business begins to strain one’s personal finances. This typically happens among sole proprietors who invest their own money into a business without accounting for how much the venture is actually eating into their personal savings.

4. Get an accountant and an accounting software

Getting help from an accountant is an essential part of your business strategy. You wouldn’t want to lose time and be stuck doing invoices and calculating taxes instead of growing your client base or product line.

But if you prefer to do things in-house (and have a bit of leeway, too), then getting an accounting software is another option for your team. Automated features in these software solutions reduce the incidence of human error.

5. Monitor your finances closely

Be vigilant about where your financial resources go. Keep tabs on important factors such as gross revenue, expenses, net profit, and cash flow. Even the most lucrative businesses can run into trouble if they overlook loopholes in their financial management.

Using apps and software programs to help you keep an eye on your finances is important, especially if you are not an experienced accountant. An online percentage decrease calculator, tax software, and other help are available online and can benefit a business of any size. 

6. Be wise about applying for credit or loans

Don’t wait until the rainy days to secure funding through credit lines. You are more likely to get approved while you are in good financial standing. Applying for a loan or credit should always be a strategic move: remember to use the additional resources as leverage for the business to grow.

7. Be strategic in your spending

When resources are tight, small business owners are often forced to cut back spending on non-essential items and redirect funds to cover more urgent expenses. Most entrepreneurs will choose to part with their dime if the cost will directly or indirectly lead to the business becoming more profitable because of it. For example, spending on top-of-the-line technology that will outlast cheaper options and deliver the best use value in the long run.

8. Negotiate the terms of your contracts

Being a small business owner requires you to be able to strike good deals with a host of suppliers, partners, and affiliates. Before negotiating a contract, decide on the terms and conditions, such as lease terms, payment options and schedule, handling costs, and possible penalties for late payments. Find out if you can also get a bargain on exclusive partnerships and promotional deals with suppliers. Aim to keep costs low and get the best value for your money.

9. Get insurance

Small businesses can benefit from having insurance if they ever run into misfortune or tragedy. A good policy will cover the costs associated with property damage and the legal claims made against the company. Disasters can leave tremendous financial consequences on a business, so entrepreneurs need to know the type of insurance their business needs. It’s all a matter of preparing for the worst since, in the absence of coverage, business owners might end up paying for costs out of pocket.  

10. Invest in cybersecurity

Hackers and fraudsters are hungry for customer and financial data—and they’re eager to exploit any business regardless of their industry and size. Companies must set up their protocols and ensure digital security even before an incident occurs. Investing in firewalls, anti-malware, and threat detection tools should be part of the business plan right from the start since the financial and reputational costs of a data breach can cripple a small business.

11. Set up an emergency fund

Apart from raising capital and ensuring revolving funds cover operational costs, small business owners should set up a separate emergency fund that will help them stay afloat even during lean months. Companies that rely on seasonal sales will often prepare for the off-season by putting aside a percentage of their income in months when the business is booming.  

12. Pay down your debt

Make it a point to reduce the size of your debt by allocating a percentage of your earnings toward debt repayment. Falling behind on your payments can leave you with a bad credit score and lock you out of additional sources of funding, which may be crucial to your business. Being financially responsible entails keeping a good credit score and ensuring bad debt doesn’t carry over to the next fiscal year.

Taking charge of your finances is the first step to ensuring the future of your small business and paving the way for its eventual growth.

Barbara is a Senior Content Writer at Enova International and a contributing writer to various business and finance blogs.