“I like to unwind by going over my finances with a fine-toothed comb.”
Said pretty much no small business owner ever.
Although there may be some small and medium-sized business owners (SMBs) who are absolute wizards when it comes to their finances, most are definitely not. Especially Millennials and Gen Zers, almost half of whom went into business as a passion project and labor of love—not because they were looking for opportunities to flex their accounting muscles.
But whether you’re a certified accounting whiz or the thought of crunching numbers makes you queasy, if you own an SMB, you need to have good financial practices in place. Here’s why.
Why it pays to be smart and savvy about financial practices
Every little bit (and big bit) counts when it comes to starting, scaling, and sustaining a profitable business. And having a firm grip on your finances is one of the most powerful ways to secure your success and outpace the competition, the majority of whom (66%, according to Semrush) struggle with basic financial challenges, including paying their operating expenses.
But there’s more to it than just doing better than the “other guys.” Good financial practices offer major wins in other ways, such as:
- Allowing you to forecast revenue and expenses so you don’t get caught by surprise
- Reducing anxiety about slow months and preparing you for spikes in demand
- Providing insights into where and how your business can grow
- Empowering you to set goals and track your progress toward them
Sounds pretty good, right? And the best part is, you don’t need an accounting degree to start taking control of your finances. SMBs from every industry can make use of simple but powerful financial practices, no matter what their experience level.
To get you started, we’ve rounded up the following list of financial practices every SMB should use to maximize success and minimize the chance of failure.
Expect the best, but be prepared for the worst
This tried-and-true adage is just another way of saying “it pays to plan” — including planning for when things don’t go to plan. At a minimum, that means creating a budget, forecasting future expenses, and keeping a reserve of liquid cash equal to at least three months of business expenses. These three things alone will help shield you from some of the biggest shockwaves that send small businesses under.
Set goals for your business
You might be surprised by the number of SMBs who don’t have a vision beyond opening a storefront (digital or good old-fashion brick-and-mortar) or getting a product to market. Without a clear plan for growth in place, it becomes much trickier to make savvy business decisions and seize opportunity when it comes along. Don’t become one of these victims of short-term vision!
Also, when setting your goals, remember that the best goals are SMART: specific, measurable, achievable, relevant, and time-bound. So avoid hazy, general ideas, like “make more money” and ground your goals in detail, like:
- Setting monthly revenue targets
- Pinpointing areas for growth
- Harnessing social media to reach new markets
- Leveraging tech to cut costs and streamline workflow
While you’re at it, don’t forget that money is just a means to an end. Your goals should not just increase your profitability but also tie into the overall mission for your business. What kind of an impact are you trying to make in the world? When you have a clear idea of what you’re trying to achieve, you’re in a much better position to make the decisions that will get you there.
Get to know (and control) your cash flow
Remember what we said earlier about the majority of SMBs facing financial challenges? Cash flow is one of the biggest. It’s also what tanks up to 82% of small businesses when it’s not managed correctly.
And not managing cash flow correctly can take many forms, like having your cash tied up in inventory and not collecting receivables in a timely manner. Even too much success can lead to cash flow problems, with a business that’s growing too fast for you — and your finances — to keep up with.
Cash flow is so important that we devoted a whole post to it, but in a nutshell, you want to ensure that you have enough money coming in to cover your operating expenses at all times, as well as enough to absorb any unexpected expenses. This includes managing your profit margins, collecting payments on time, and being strategic about allocating your resources.
Simplify your billing strategy
Something most SMBs find out early on is that billing can quickly snowball into a full-time job on its own. Sending bills, processing payments, following up on overdue invoices, tracking payments…all while maintaining good client relations and keeping your cash flow healthy. It’s exhausting.
The best way to cut through all of this? Simplify your billing and make it as easy as possible for your clients to pay on time. Melio lets you send invoices with just a few clicks, along with automated reminders so that everyone is crystal clear on how and when to pay their amounts owing.
Do a yearly financial health check
It’s true what they say: the days are long, but the years are short. And once your business has pushed past those early, uncertain days and achieved a steady amount of success, you’ll be amazed at how quickly the time can pass — and how quickly you can shift into financial auto-pilot.
To keep your finances strong, healthy, and responsive to the changing times, schedule an annual financial health check where you review your revenue, expenses, and investments. These checks almost always yield useful insights that can help you reduce expenses (like getting rid of outdated software subscriptions you no longer use) and drive new growth (like discovering a new market to tap into).
Melio makes life (and finances) easier for SMBs
While financial stuff may never be your cup of tea, there are ways to make it less stressful and more intuitive, so you can focus on the parts of being an SMB that do inspire and motivate you.
Melio is on a mission to make life easier for SMBs, with simplified B2B payment options that help you manage cash flow, send and track invoices, and more. To find out more about Melio and how this easy and intuitive platform can help you manage your business, sign up today.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.