Securing financial peace for your small business is important to your business, and due diligence is needed to reduce the chances that accounting errors or fraudulent activities lead your business towards failure. According to Dave Ramsey, most small businesses fail because of poor accounting, lack of budgeting, and debt. These might seem like basic tasks, but as many as 73.6 percent of small businesses fail after five years. Positive cash flow is essential, and it can make or break a business.
9 Principles for Securing Financial Peace for Your Small Business
If you want to succeed, consider implementing a few of these basic principles to secure financial peace for your small business:
- Keep Expenses Separate—Never comingle personal and business expenses. Deposit your business income and pay your expenses from your business account. You don’t need expensive business checks or an account with high fees. You can often open a business account with a few dollars, and eliminate fees by setting up a few bill pays online.
- Set Aside Taxes—When you pay yourself a wage, you’ll need to set aside money for taxes as well. A good rule of thumb is to set aside 25% of the amount that you withdraw from your account to pay taxes when they’re due.
- Budget—Every business should have a profit and loss statement for tax purposes. However, not every business has a realistic budget. A budget helps you plan for the future and manage your expenses. It will serve as a barometer for how your business is performing, and you’ll be able to identify any seasonal or systemic problems that drain your cash.
- Act Your Wage—Don’t pile on the debt by buying fancy cars, new equipment, and expensive furniture for appearance purposes. Only buy what you need to keep your business running. As your wage increases, so can your toys.
- Eliminate Debt—Venture capitalists and investors favor companies that demonstrate positive cash flow. According to the Bureau of Census data, 60 percent of small businesses need less than $5,000 to get started. Start small and gradually expand as you experience more and more success.
- Save for Purchases—Systematically save for large purchases by setting aside a fixed amount every month towards the purchase price. If you can’t save the money, it’s likely that you won’t be able to make the payments either.
- Rent First and Buy Used—Rent expensive equipment until you can pay cash. When you save enough for the purchase, consider buying high quality used equipment to save money.
- Outsource—Outsource if you don’t have the skill or financial means to perform the work in house.
- Retain Earnings—You’ll want to retain some of your income for emergency expenses, a sudden loss of revenue, a great deal, or an investment in your company.
The easiest way to apply these principles is to develop an accurate budget and do a better job of accounting. You should also purchase only what your business needs to be successful, not just what you need for a tax break. How are you securing financial peace for your small business? I’d love to hear your tips, and share them on a future post.