Commercial Finances: A Beginner’s Guide
The desire to own a business remains high among Americans, with 4.35 new business applications submitted in 2020 alone. That figure is an impressive 74 percent more than in 2010.
Sadly, the vast majority of all new businesses close within a decade. Knowing what contributes to the failure of new businesses can help you guide yours into success.
Poor management of commercial finances is the top reason businesses shut down. It accounts for 82 percent of all business failures. Thus, knowing how to manage business finances is the most powerful trait an entrepreneur can possess.
In this guide, we give you five easy tips on managing finances and achieving success in the business world.
Separate Business Finances From Personal Finances
One of the most critical business finance tips you can learn is never to mix commercial finances and personal finances. Mixing the two only brings confusion to such tasks as filing taxes and dealing with UCC 3.
Moreover, when you don’t keep business finances and personal finances separate, you expose yourself to personal liability. In case things go wrong, you could end up losing your personal assets.
Keep Investing in Business Growth
As a small business, you need to keep looking into growth opportunities. Always set aside funds to invest in such opportunities, so you keep moving in a healthy direction.
You can only attract the best talent by demonstrating that you’re ready to invest in the future. Besides, your customers expect a level of service that keeps increasing, which can only happen if you continue to invest in growth.
Embrace Business Loans
For many beginners, business loans can be very scary. Many fear the financial repercussions associated with defaulting on the loans.
But financing is an indispensable part of running a successful enterprise. Loans provide the capital influx needed to spur growth. Without them, business owners would face significant challenges when trying to buy equipment or grow their companies.
You can use loans to strengthen your cash flow and ensure that your suppliers and employees are paid on time.
Build Your Business Credit
As your business grows, you’ll want to buy more assets. Getting financing to finance these purchases is easier if you have good business credit. That’s why you want to start working on your business credit from the very beginning.
To maintain a healthy business credit, ensure that you always pay off your debt financing promptly. You also want to avoid taking out loans with interest rates that you cannot afford.
Monitor Your Books Closely
Setting aside time each day, week, or month to review your books is an essential discipline. Do so even if you already have a bookkeeper. Monitoring your books helps you get more familiar with your business finance, besides giving you the opportunity to spot any possible financial crime in your business.
Go through your bank reconciliations and review outstanding invoices. This way, you can reign in any wasteful spending and avert potential embezzlement.
Take Charge of Your Commercial Finances
As a business owner, it’s your responsibility to steer your business towards a stable financial future. By educating yourself on how to manage commercial finances, you can steer clear of the cash flow challenges that condemn many businesses to an early grave.
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