Your financial habits will make or break your business
Your business will become the management habit you have developed. Especially the habits around managing your business finances. If your financial management style afford you greater control over your business finances, you’ll have a higher chance of scailing-up your business and build a stronger business credit score.
On the other hand, if you consistently find your business finances stretched, make the time to do a review of your finances and financial management habits. If you’re wondering “What kind of habits create a successful business?” From our experience, here are the 5 financial habits that can help you build a highly successful business:
1) Save Some to Win Some
Why this is important: Just like your own personal savings, having a cash reserve is imperative to your business longevity so that you don’t get caught off guard by any situation. As you set up the system to allocate funds to your reserves, consider a few factors that can help you in the long rund:
- Save to pay your taxes so that you won’t need to scramble when taxes are due. As a rule of thumb, save up to cover 80% of last year’s taxes.
- Save to pay for your self. This will help keeping your personal and business finances separate and making sure that your personal finances do not have to suffer for your business.
- Save to sustain slow days. There is no guarnatee that your business won’t experience slow periods throughout the year. When it does, make sure you have a financial safety net to cover the expenses.
2) Strategic Debt Utilization
Debt can be a good thing for your business if used and managed properly. The existence of debt puts your finances under risk and greater scrutiny from business bureaus and lenders. Thus it is important to keep a low debt utilization ratio. Meaning that you only use a fraction of your credit limit.
Why your debt utilization ratio is important to your business growth:
- Debt utilization ratio, specifically of a revolving line of credit, will highly influence your business credit score.
- Higher utilization ratio, unaccompanied by healthy revenue stream, will stretch your finances.
- High utlization ratio is seen as poor debt management by lenders and you’ll have a harder time securing a loan or getting favorable terms
Debt is meant to generate additional revenue for your business. So if a loan is going to put more financial burden on your business, it is better to wait or seek out a different type of loan
3) Follow The Money
Be meticulous with tracking your business expenses. This will expose the trends in your spending so that you can cut out expenses that do not benefit your business growth. Some expenses can be avoided by doing things in house or reduced by taking advantage of tax benefits.
If you manage your business accounting by yourself, create a system to automate the expenses tracking such as linking your business credit card or business bank account with your accounting software. If your business has an accountant who manages your finances, keep a consistent schedule to meet and go over your business finances.
4) Maximize Tax Benefits
Have you considered the tax benefits on offer for business owners? State and federal government offer a diverse range of tax programs designed to help businesses that covers covers various itmes from depreciation to moving expenses. If you are not sure which of your business expense is covered, consult with a tax professional. For a quick guide, you can take a look of this list of tax benefits.
5) Financial Analysis
Regular analysis of your statements help you understand the scale and activity of your business operations, improvement areas and your cash flow activities.
For example, by paying attention to your financial ratio analysis, you’ll uncover the areas that would benefit the most from operational changes. For example, your current ratio is relatively high for your operational activities, say 1.8. This looks good at first but also indicate that you may not efficiently manage your current assets due to bloated inventory or receivables.
The right financing will change your business future. It’s time to get yours
The financial habits you develop around your business management will make or break the future of your business. The habits mentioned here will afford you greater control over your business finances. Allowing you to better understand the limitations and potential that your business carry so that you can make the right decisions to grow