Statistics published by the Small Business Administration in 2016 reveal that about 78 per cent of small business start-ups survive the first year. Furthermore, only half of all employer establishments survive at least five years, while a third survive ten years or more.
Although failure can be for a number of reasons, some of the most significant include inadequate cash reserves, failure to anticipate cash flow, and ill-timed financing. So, how can you ensure you don’t fall foul of these mistakes?
Get the basics right from the get-go
First of all, ensure your fundamental financial requirements are always taken care of. For example, printable deposit slips make things quick and easy, while also eliminating the need for double entry.
The same convenience can be had with tax forms as well as checks for paying suppliers and vendors. With the time saved, you can concentrate on more important areas of the business that need your attention.
Consider your business entity
There is a good chance you set your business up as a sole proprietorship or partnership. But as time goes by, you may want to reconsider your business entity, especially if you’ve enjoyed impressive growth.
For example, by incorporating (or forming an LLC) you will protect yourself against financial risk and may even save money on taxes. Failing to adjust your business entity based on revenue can prove costly.
Use technology to your advantage
In order to streamline your operations and finances, look towards the latest technology. For example, there are several cloud-based and mobile apps that can help overcome the kind of issues facing small businesses, such as getting paid on time and expense reporting.
“If you’re not sure where to begin, consider what make up the toughest parts of managing your finances,” says Nellie Akalp, CEO of CorpNet.com. “Your biggest headaches offer the best opportunities to improve your execution.”
Review your estimated tax payments
It’s simply good practice to review financials for the business to find out where you stand year to date. You may also want to come up with a forecast for the rest of the year.
You can then assess your estimated tax payments without the frustration of underpayment penalties next year. Then again, don’t overpay with your estimated payments. Regardless of interest rates, your business could put the money to better use.
Separate personal and business finances
If you do decide to re-evaluate your business entity to an LLC or Corporation, it is mandatory to keep personal finances separate from the business. However, it makes sense to do so anyway.
There are a couple of ways to do this, as Akalp explains:
- Opening a business credit card – “By putting all your business expenses on the business card, you’ve got an instant audit trail of your year’s expenses when tax time rolls around again.”
- Open a business checking/savings account – “Consider opening a dedicated savings account or money market account where you can transfer approximately 25 per cent for each check or payment received as your own personal tax withholdings.”