By Scott Hines
President and CEO
Kalamazoo County State Bank
Running your own small business can be very rewarding; yet it does have its challenges. You are your own boss – which is very liberating. However, when you own your own business, it often means you are the person who does everything for your operation – managing, hiring, purchasing, accounting, and making all the decisions. A major reason a business will succeed is knowing what to do to make the business run successfully. Two keys to running a financially stable business are understanding and organization. The better you understand how to manage your company’s finances, the less likely you are to fail. Likewise, organization is fundamental in keeping excellent track of all your company’s credit and books. Organization is vital in operating a successful business.
Here are five financial tips that can help make or break a small business.
- Compensate Yourself
Often, small business owners fail to pay themselves for what they do. They feel it is more important to retain funds for the rainy day, reinvest in additional inventory or perhaps hire other staff. However, when you fail to pay yourself, you’re basically operating a charity. You are not working with enough information to show if your business is successful or heading in a positive direction. Understand your role in the company and pay yourself for it. You would not work this hard at another organization and not expect to be compensated. Successful business owners do not work for free. - Don’t Be Afraid to Borrow
Although it may seem counterintuitive, often borrowing small amounts of money for working capital can be better than waiting to reinvest in your growth with earned cash only. Businesses that want to grow, innovate, and attract employees and customers often borrow to meet the initial challenges of growing into the future. Loans can be scary but done correctly and timed with business growth and profits can be very beneficial. Talking with a small business lender can help you plan when it is best to borrow for your company’s growth. - Have a Good Payment History and Billing Strategy
As a new or growing business, it is extremely important that you keep on top of both incoming and outgoing monies. As a small business, having a great relationship with your suppliers is key. One of the best ways to make sure the relationship is solid is to make your payments on time. There may be a time later when you need extra time to pay or ask for an increase in supply, your prior history of meeting your debt obligations will go a long way in future dealings. In the same manner as paying your bills, you also need to stay on top of payments due you. If you allow customers to buy on credit, have a strategy to obtain the funds back as soon as possible. Often businesses pay as soon as the bill is received, others buy as much time as possible, causing your cash flow to slow. Consider options such as the normal 2/10 or net 30. In other words, customers can discount the bill 2% if they pay you within the first 10 days of billing. If not, they have 30 days to pay the bill in full. In addition, consider some sort of penalty for customers who go beyond 30 days. Just as you stay in contact with your suppliers, and build solid relationships, it is always good to create the best relationship you can with your buyers as well. - Create Good Financial Habits
Make sure to establish internal financial controls, even if it’s as simple as dedicating a set time to review and update weekly financial information. This can go a long way in protecting the financial health of your business. Even when you have staff taking care of your accounting, it is always a good idea to take a personal interest. Keeping up with your finances will help you alleviate financial oversights and can mitigate chances of employee fraud as controls are kept current. - Plan Ahead
There will always be business issues that need to be addressed daily, but when it comes to your finances, you need to plan well into the future. If you’re not looking 5 to 10 years ahead, you are behind the competition. Make sure you have a short-term operational plan that includes an operating budget, as well as a long-term business plan for growth. These plans may change over time and that is fine…if you are making moves that are well-planned and strategic based on your goals.
Running your own small business is more rewarding when you can anticipate the financial challenges and prepare for them. As a business owner, stay focused on the financial stability of your business. Understand your operation – all of it. What’s coming in and going out. This is where organization is vital to operating a successful business.
Whatever stage your company is in today, your community banker may provide insight into the financial tips that can help your small business. Community bankers work with local small businesses daily, so they see the plans and strategies that work. Your community banker may guide you in understanding the financial tips that can help make or break your small business.
Consider meeting with a community banker today at Kalamazoo County State Bank (KCSB). KCSB has the necessary business services to help you manage your daily operations efficiently, securely, and easily. To learn more about KCSB’s business services including business loans and lines of credit, see Your Guide to Business Banking, call 269.679.5291, or visit a branch office. See https://kcsbank.com/locations to find a location most convenient for you. Discover a more personal business journey with your community banker today!
Kalamazoo County State Bank is an Equal Housing Lender and Member FDIC.