Small business owners routinely face challenges when it comes to managing their cash, whether it’s dealing with their business’ off season to unexpected low business volume.
If you already own a small business, or are thinking of starting one, here are some things to think about when it comes to managing your money. Getting things squared away early on can give you peace of mind to spend time growing your business, instead of stressing over whether you’re making enough to pay your bills each month.
1. Know Your Credit Score
If you’re looking for a loan or other form of external financing to fund your business, your personal credit history is extremely important. Why? Because if you don’t have good credit, chances are you won’t be able to find affordable financing to support the growth of your business.
Although there are bad credit loans available, the interest rates on those loans is likely going to be prohibitive, which can be even more of a problem if you’re already facing a cash crunch.
It is always better if you clean up your credit history before seeking outside financing. And the truth is, if you have had a hard time managing money in your personal life, chances are that could also translate to your business money, too
Lenders will determine your eligibility on the basis of your income, previous employment history, and any other income you earn. This criteria is also used for determining your car loan affordability if you are getting one for your business.
2. Know about Merchant Advances
A merchant card advance is another new businesses can use to secure external financing to support their business.
Merchant Card Advance or MCA can be an easier route than getting loans for many small businesses, but MCA carries with it its own set of drawbacks.
If you use an MCA, you basically give your card issuer claim over your sales proceeds against the loan. This kind of financing is often an easier option to get approved for because it is unsecured.
However, remember: MCA is not the only option available to a small business owner. There are other private small business loans which can be obtained either as secured or unsecured loans.
3. Use Small Business Money-Management Software
When you’re first starting out it may be tempting to manage your records manually but it pays off in the long run if you can start recording your receipts and payments from the beginning.
The easiest way is to use software or subscribe to services like QuickBooks so that your business starts with sound accounting practices.
Recording your expenses, revenue, and income using good accounting software will help you in managing your taxes as well as any other returns that you might need to file with other regulatory agencies.
4. Hire a Lawyer and Accountant
Early on when you are short of money, hiring outside help may seem expensive but believe me it is worth investing in a good lawyer and accountant.
Many small business owners initially sign contracts such as their rental agreements, lease agreements, purchase agreements and other legal documentation. A good lawyer hired can easily help you to save on legal costs in the future in case of any disputes.
Start-ups and small businesses run a higher risk of failure during the first few years of operation. A savvy business owner should start early and cover all the risk areas before putting their own capital at risk.
Good planning along with a better team and improved money management can help you focus on your core business strengths early on, letting you focus on growing your business.