Starting a new venture requires diligence. Whether it’s ensuring your customers are happy or it’s perfecting your products and services you’ll need to keep pushing on. With that said, there’s one area that’s often overlooked by small business owners. That area is accounting. Even if you aren’t a finance whiz, it’s absolutely imperative that you have some basic accounting knowledge so you can keep your business afloat when times are tough.
Here are five accounting tips every small business owner should know regardless of your financial aptitude:
Give Payment Incentives and Rewards
Whether you’re pricing your goods for your store or you’re sending an invoice it’s always a good idea to give your customers incentive to make payments. For online and in-store payments make sure you mark-up your products slightly above your ideal margins so you can offer discounts. Consumers love getting more bang for their buck. In fact, they are likely to spend much more if they think their getting a deal. This encourages more sales without sacrificing your bottom line.
If you’re sending invoices to clients, you should offer an incentive if the client pays early. Late payments can severely hurt your cash flow especially if you’re a freelancer. As long as you’re strategic about discounts and incentives, this strategy will surely boost your cash flow rather than the latter.
Utilize Current Payment Technology and Accounting Software
This is one of the best tips I can give any freelancer or small business. Writing paper checks and keeping folders of invoices is a guaranteed accounting nightmare. It may seem manageable when you’re small, but if you plan on effectively scaling your business you need to use a cloud accounting service.
Many of the top payments companies offer online invoicing and accounting solutions for businesses of all sizes. These platforms operate in the cloud so you can access your finances from anywhere. Pricing and features are often set on a tiered structure so it’s super easy to scale the software with your business.
Keep a Cash Reserve
In business and in life you should always have a contingency plan. It’s common for small business owners to dump excess cash back into their business to scale. This is a good practice only if you’re putting a small portion into cash reserves. Most financial analysts suggest having at least three months of runway (basic operating expenses) on hand at all times. However, I suggest having at least six months of runway since things never go exactly as planned. You should check your reserves quarterly and make sure your reserves can keep you afloat for six more months. If not, it’s time to start putting a bit more away.
Consider Multiple Financing Options
It’s good to bootstrap as long as you can. However, there comes a time in nearly every startups life cycle when they need to raise money. Timing is everything. That said, it’s really tough to know when the time is right. The last thing you want is to regret not acquiring funding when you had the chance. Instead of seeking tradition venture capital or angel investors I suggest exploring a few alternative financing options. Traditional funding methods like venture capital can take months to secure funding. Always explore every option so your business never becomes stagnant.
Delegate Your Accounting To Someone Else
Some of us are just not meant for accounting. That doesn’t mean you shouldn’t learn the basic skills, but it may mean you need to find another employee or service to handle your day-to-day finances. To start you can hire a contracted money manager or local accounting firm to handle all the tedious tasks. These experts also know various tricks to save you money and can help mitigate financial blunders in the future.
Every small business owner carries the weight of their entire business on their shoulders. One of the main factors is your company’s financial health. Use these five accounting tips to position yourself and your business for success.