Most small business owners would agree that one of the most challenging aspects of owning a business is managing the finances. Many times, the reason your small business is successful is that you are skilled in making your product or providing a service. If you’re not experienced with managing finances, it can seem like a hassle, and you may slip into bad habits that could be detrimental to your business.
Managing Business Finances is Important
The most important thing you can do as a business owner is to educate yourself on the basic skills required to run a business, such as simple accounting tasks, creating financial statements, and applying for a loan. This will help you create a secure future for your business and help you avoid failure.
Tips to Manage Your Business Finances
As a small business owner, you should keep the following in mind to manage your business finances:
• Always pay yourself
• Set aside money for growth opportunities
• Don’t be scared of loans
• Make sure your business credit is good at all times
• Stay on top of billing and payments
• Spread out your tax payments
• Pay attention to your books
• Pay attention to investments- but also return on investments
• Establish (and stick to) good financial habits
• Plan for the future
Types of Business Finances
One very important thing to remember is that there’s more to business finances than your earnings. It also involves where you’re getting your money and how you’re spending it.
There are two primary ways to get funding:
• Debt funding
• Equity funding
This type of funding refers to a loan that your business pays with interest. This type of funding allows you to get the capital you may not otherwise have access to for weeks or months. The most common forms of debt financing include:
• Merchant cash advances
• Bank loans
• Business credit cards
• Business credit lines
• Government loans
All of these must be repaid, whether your business is successful or not.
Equity funding is different from debt funding in that you do not have to pay it back if your business is not successful. That being said, you do typically have to offer those who are funding you a seat on the board to make decisions regarding the business. Common forms of equity funding include:
• Angel investors
• Venture capitalists
• Equity crowdfunding
Managing business finances can be a hassle- especially if you’re not sure what you are doing. However, Aspen Capital Solutions can help. We can help you understand how business finances work, show you how to draft financial statements, and so much more.