Let’s face it. The most common reason why businesses tend to fail is that they lack enough funds. Managing scarce resources is also a major challenge for small businesses.
There’s a good chance you’ll need small business loans at least once in the life of your business.
Many businesses still struggle with simple tasks like managing invoices and expense tracking. This is why it’s essential to know how to manage small business finances.
The following are seven essential tips for managing small business loans;
1. Educate Yourself
If you want your business to survive and grow for a long time, you need to know about money and how to manage it.
If you continue to educate yourself, you can avoid the common financial problems most businesses face. You will also have an easy time budgeting and making plans for your business.
You can begin by studying financial statements. Financial statements tell us more about where the money comes from and where it is at the moment. They also explain how you’ve spent the money.
To achieve financial literacy, you can also start by performing simple accounting tasks.
2. Maintain a Borderline Between Business and Personal Finances
After forming your business, you should register a commercial bank account with your business name. You should separate your business and personal bank accounts. Don’t withdraw money from the business bank account to spend on personal items and vice versa.
This will make your accounting way more manageable at the end of the financial year. It also helps you to avoid cash crunches due to wrongful withdrawals. This is especially critical for tax ascertainment purposes.
It’s also advisable to have another savings account for things like quarterly tax payments.
3. Know Your Options for Small Business Loans
Small business loans help businesses to survive and grow.
You have a variety of small business loans to choose from;
• Small Business Administration (SBA) loans
• Equipment financing
• Merchant cash advances
• Term loans
• Business credit cards
• Business lines of credit
• Angel investors
• Small business grants
You can also get funds from your family and friends. Things can get tough. Therefore you’re advised to go for the most suitable financing option.
You should opt for a business loan that is relevant to your business. A good example is eCommerce financing options if you have an online business.
Financial experts advise that you should apply to get a loan as early as when you realize you need it. Don’t wait until you’re in serious problems to ask for funding. It will be harder to secure a loan with the best terms of repayment.
4. Build Your Business Credit Score
With a good credit score, it’s easier to get a small business loan whenever you need it. Some of the best ways to build a better credit score include;
• Develop relationships with vendors and suppliers, so they can keep extending credit when you pay on time
• Pay your bills early
• Set up a phone number for your business and list it in the local directories
• Always check the credit reports of your business to detect any mistakes or errors
You should also take care of your personal credit score. It can affect your business, especially if it’s a sole proprietorship. It’s also a major challenge for those who are starting out.
5. Be Frugal and Track How Your Money Moves
This tip is especially crucial if you’re starting up, or you’re running a new business operation.
When you don’t have money, you need to think carefully about costs and spending. This doesn’t mean you may spend on cheap services. It will only make it more challenging to offer services, and you’ll fail to satisfy your customers.
Being frugal means doing whatever you can to avoid unnecessary costs and spending.
Keep in mind that businesses run on two types of costs; fixed and variable costs. You can’t control fixed costs, but you can keep the variable costs as low as possible.
An excellent example is using free apps for communication instead of branded software that’s expensive.
Keeping track of your company’s progress allows you to know which areas are performing well, and where you need to cut down on spending.
6. Set up Automatic Loan Repayments
Paying late or missing payments altogether will hurt your credit score. It also makes it more difficult to secure another business loan in the future. You can take advantage of the lender’s online banking system, and set up automatic debits from your account.
An auto-debit relieves you from carrying money around. It’s also an effective way of ensuring you pay your loan on time. Some banks may offer better terms on loans for customers who set up auto-debits.
7. Invest in Technology and Reliable Accounting Software
Investing in technology helps you stay ahead of the competition. It enables you to understand the terms of your business. Sometimes, it’s advisable to use online programs to keep records and manage accounts.
Using online software also helps a business maintain its online presence. This allows it to attract more clients.
There’s a variety of bookkeeping software available for businesses to use. They can be used for paying taxes and coming up with budgets. Most large companies bring in professionals who can use accounting software.
Technology has brought with it networking opportunities which businesses should take advantage of.
Other methods of managing small business finances include;
• Coming up with an emergency fund
• Avoiding expensive credit
• Applying for insurance
• Establishing an account for retirement
• Monitoring your books and records regularly
Reducing the amount of debt is always a major priority in any business. Bad debts can damage the reputation of your business and ruin your credit rating. You should avoid carrying obligations from one financial year to the next.
Operating a small business can be exciting and challenging at the same time. This is especially true when it comes to making small business loans work best for you. The more attention you pay to your cash flows, the more manageable your finances will be.
If you are facing issues and need to manage your finances properly, you should keep the seven critical tips in mind.
For more information and smart money management tips, please explore the other sections of our blog.