How to Maintain Your Financial Health as a Small Business

Successfully started and are running a small business? That is no small feat in today’s economy, but as with any project, passion or otherwise there are some features and actions that are essential to maintaining health.

The financial health of a small business is not just vital because it maintains a lifestyle, it is also a major determinant of the overall — and forecasted health— of the business. If shortcuts are taken, things overlooked, or problems ignored, that can spell disaster in the future.

The financial health of a business will encourage or impede the ability to provide great products and services. As such, here is a list of things to keep in mind when maintaining the financial health of a small business.

Managing that Budget

A study done by U.S Bank showed that a staggering 82% of small businesses end up not making it because of poorly managed cashflow. One of the most effective methods for avoiding this fall out is to make and maintain a healthy budget that is in line with all the other elements of the business model.

If the right kind of planning was done ahead of time to clarify things like the mission statement, the product/ service, and goals, a budget should (hopefully) have been something that was thoughtfully interconnected to those other elements. Being that a business will grow and change, fluctuating with the many variables that exist in the world, economy, society, and investment banking strategies, a budget will be fluid to a point as well.

However, a budget should act like a baseline test, a backstop by which a company can determine how, when, and what kind of decisions can be made at the right time. There may be a great idea that could boost the performance and revenue of the business, but without the right allocation of funding into that idea or the resources needed to support the new venture, a move like that can be devastating— not just to the cash reserves, but the future potential of the business.

Depending on the size of a business, hiring a financial controller may be a great decision to support budgeting and overall financial health.

Setting the habit of regularly going over and adjusting budgets according to successes and setbacks will help to keep a clear, well balanced picture of the internal health of a company. Part of that can be broken down into another step: monitoring your expenses.

Expenses

One of the most important factors of a small business is related to expenses. The bottom line is, if a business isn’t clear about what is essential and what is not, then those unnecessary expenditures are going to be a drain on every other aspect.

By taking a look at where money is going, weighing the necessity of that cost against alternative uses of those funds, or just the item or service being used, money can gradually begin to build back up. Finding even little expenditures are like leaks in a dam: they may not be a problem yet, but it’s a strain on the structure and system as a whole.

Not attending to them can add up to larger, more significant, and consequential problems in the future. Tracking those expenses— and there are plenty of ways and helpful resources to do so effectively— will not only support the budget health, but it will be a peace of mind.

Financial Obligations

Every person and business has a collection of financial obligations which are just a part of life. Whether it is paying rent, taxes, utilities, or just filling up the gas tank, things won’t run smoothly if those financial obligations are not understood and appropriately maintained.

American small businesses employ over 60 million people and with rising labor costs, inflation, and all manner of unpredictable socio-political tides flowing through world economies, being able to honor financial obligations is very important.

Paying employees accounts for around 70% of a small business expense, as such being able to pay employees on time, and consistently is not just a strong sign of overall financial health, it’s the law. Paying employees should always be a top point on the budget and expenses sheets.