One of the most valuable, yet least-practiced skill in business management is financial savvy. To keep your business running, you must make a profit and spend wisely. Yet, a study of 1,700 small business owners found that less than one in four owners have consistent financial habits. Without the right financial habits, you can’t be well-prepared for the future. Read on to learn more.
Save for taxes
When tax time comes around, many business owners find they have to borrow money just to pay their taxes. It can be quite the stressful time. To avoid any confusion, determine what percentage of your income you will own in taxes.
Then, set that amount aside immediately so that you don’t include it with your business income. A common practice is to set aside 30 cents of every dollar you earn. Remember, if you worked for someone else, it would be taken out automatically. This way, when tax season rolls around, you are stress free.
Pay all of your lenders
You must remember this: a dollar of revenue is not the same as a dollar of profit. You have bills and employees to pay. So, profit comes after your required payments are made. Many business owners confuse revenue with profit, then, they dig themselves into a deep hole of debt. Plus, it helps to pay off your lenders.
Set up a payment plan that is comfortable for you, but aggressive enough to get out of debt as soon as possible. To keep things secure, send your payment term agreements via a network fax.
Stick to a budget
One way to get better at budgeting is to practice. At the beginning of the month, make a budget for how much revenue you expect and how much in expenses you will have. At the end of the month, review your budget against your real results.
Repeat this process every month. After a few months, you’ll have useful and more insightful knowledge of your spending habits, along with where you can afford to cut back. According to the Small Business Administration, small businesses create 70 percent of net new jobs nationally. So, when you win, so does the economy and job creation.
Review your finances
Bad money habits can really break your business. As a result, you want to have a deep understanding of your patterns of revenue and expenses. This can be accomplished through monthly, or even weekly, financial reviews. You might be surprised at your findings with items such as how quickly or how slowly your business is growing.
Separate your personal and business income
You must pay yourself. Yet, you don’t need to send yourself a weekly or bi-monthly paycheck. You can easily retrieve money from your business account for your personal income. Yet, your income will fluctuate depending on the health of your business. Think of how your business income needs to be separate from your personal income.
To illustrate, if your small business generates $200,000 annually in revenue, that does not mean you get a salary of $200,000. If you have employees, rent, debt taxes, advertising and other bills to pay, you can expect your salary to be only a small portion of that amount.
This is why you need to separate your business and personal income–they will be much different amounts. In addition, you will spend less on personal expenses because you realize your personal income is different from your business earnings.
Practicing wise financial habits will help your business last for the long haul. Plus, it helps to prevent those sleepless nights worrying about money.