There’s a lot to keep track of when running a business. You have to balance the needs of employees, customers, and the business itself. This is especially challenging when you’re just starting and your business isn’t established.
With that said, whether you’re a new business owner or a seasoned entrepreneur, some things don’t change. You always need to prioritize your business’s finances to keep the lights on and stay in business. Here’s why keeping on top of your finances is critical, no matter what stage of business you’re in.
Stay lean for more growth
Every business has its expenses. From utilities and janitorial services in the office to website hosting, even home-based businesses have to pay for goods and services to keep things running.
Some of these expenses are unavoidable and fixed — you’re not likely to get a discount on rent. However, other expenses are a bit less critical. Always be on the lookout for expenses that can be reduced or cut altogether.
Keeping a lean budget will give you more money to work with for investing in growth. Just be sure you’re not cutting into areas that will cause problems down the line. Think critically about what you need to operate and consider cutting out some of the extras.
Know your ROI
Some business owners invest in all kinds of projects without fully understanding what they’re getting out of these investments. They’re not clear on the ROI (return on investment). For example, if you invest in marketing services without understanding how to evaluate the amount you’re making from each campaign, you might lose money instead of increasing your profit.
Understanding your ROI is essential for your profit margins and making decisions about how to invest your business capital. To make the best use of your money, you must understand how to invest it wisely.
Protect yourself from fraud
You might not notice if something goes wrong if you’re not on top of your business’s finances. It’s easy to think that you could never be a target for fraud, but it’s always a possibility that you need to keep in mind.
There are many ways businesses can lose money. A data breach could result in lost revenue and other costs, while an accounting scandal could be responsible for direct monetary losses. Even if you employ someone to manage your business’s finances, you need to stay on top of your finances so that you can tell when something looks “off.”
Accomplish your long-term goals
Many business owners have long-term goals that require extra money. If you want to upgrade your equipment or hire new staff to grow your business, you will need to pay for those additional costs. By prioritizing your business’s finances, you can see how much money will be needed for your long-term goals.
If you don’t prioritize your business’s finances, you will likely struggle with growth. You might not have the money to invest when needed, meaning your business might stagnate.
Be prepared for taxes
Your finance skills will be tested every year around tax time. Even if you have a bookkeeper or accountant, you still need to be involved with making sure your taxes get paid. Surprises during tax season are never fun, so it’s essential to have the financial literacy to know what your obligations are every year.
Paying taxes isn’t the most fun activity for a business owner. But it’s incredibly stressful to find out that you’re in a sticky situation with the IRS. Prioritize understanding your taxes and ensuring you can pay them in April.
Put away money for a rainy day
Nothing in life or business is inevitable. The world is constantly changing and it’s not always clear how different changes will affect your business. You need to be prepared for the market change, or a recession hit. You must be prepared for automation, new competition, and other factors that might affect your success.
When business slows down, whether due to reduced demand or a global crisis, it’s essential to have money set aside. If the issue is only temporary, that money will help get you through to the other side. It will give you the money you need to make changes and pivot as needed if it’s permanent.
While it’s essential to have extra money set aside for issues within your business operations. Do you have the money to fix or replace your equipment? Your rainy day fund could save the day.
Get to know the patterns and make projections
We live in a data-driven world. Depending on your business, you might see more revenue at different times of the year and have variable costs, like products. Understanding the projected demand for your goods and services at different times is critical for reducing waste, making staffing decisions, and optimizing your operations.
By prioritizing your finances, you’ll start to see the patterns within your business. You’ll be able to make better projections about how much of each product you should order and when. You’ll have a better idea of when you will need staff to put in more hours. These projections will help you run a more efficient business that meets your customers’ needs.
Gain a better understanding of your business
At the end of the day, if you run a for-profit business, money matters, period. Your goal is to make a profit. While you might have different goals within your business, like making your organization a great place to work or helping customers solve their problems, the fact is that you’re also trying to make money while accomplishing those goals.
That’s why it’s so important to prioritize your business finances. You’ll better understand how every part of your business works together to create the profit you’re going for. No, money isn’t everything. But in business, it’s one of the most important things to prioritize.
