Lack of knowledge in finance and accounting is a major issue for small business owners. Research has shown that at least 60% of small and medium-sized business owners fell that they don’t have adequate information in the area, which leads to making mistakes that would have been avoided. Business finance is not the most exciting topic, but for your business to succeed, you have to force yourself to understand and navigate the numbers.
Without looking at your finances from the right lens, you will assume you are making profits while you could be in deep trouble. If you mix your personal finances with that of your business, the problem could be worse. Luckily, there are a few personal finance tips you can use to run your business to success. As simple as these tips may sound, it will take you a lot of willpower to implement them and stick to the plan while remaining flexible enough to change what is not working. Let’s dive in.
- Get a clear financial picture
Keeping your accounting books and preparing a comprehensive budget is the only way to know how healthy your finances are. Create and stick to a budget to help you manage your income and expenses, and reconciling any amounts you might have missed. Your personal budget usually includes your savings, bills, and money you will keep for fun and other activities. In contrast, your business budget will have income, payroll, rent, office supplies, tax, among others.
- Watch your debt-to-income ratio
A debt-to-income ratio is used to measure how much revenue you get against the credit card and other debts you owe. The same principle will be used to measure your business debt against how much revenue you generate. The bank then uses this information to cap how much money you can borrow and determine how much you can pay every month, and how long it will take to finish paying the loan. You can calculate this for yourself by dividing your current debt with your monthly revenue.
If you are close to reaching your loan limit, it’s always advisable to concentrate on paying it off first before you take out more loans. This will safeguard your credit score and keep your company’s finances healthy. Payroll funding or invoice factoring will be your best bet during this time. This method allows you to convert your invoice to cash immediately, so your business does not hit a financial snug. The payroll company, such as PayrollFunding.com, advances up to 90% of your invoice amount and releases the remaining 10% once the invoice is paid, less their charge fee.
- Have insurance
Unforeseen circumstances such as accidents can lead to losing a lot of your capital if you don’t take out the right insurance. There are various insurance policies like employer’s liability insurance and general insurance that will come in handy when trouble strikes. If your business was to burn down or be destroyed during a tsunami, you should have insurance to cover the loss.
- Use technology to your advantage
Tech has made our personal lives easier through budgeting apps that track our expenses. If your staffing agency is still in its inception stage, one of these apps will come in handy because they are relatively affordable and will still do what a fancy software will cover. Some sophisticated apps will track your expenses, revenue, remind you to send invoices, prepare payroll and much more. Also, you can save travel time and expenses through video conferences and save time on your social media management through apps that take care of that for you.
- Pay yourself
One of the little-known secrets to sticking to a budget is having enough money for play. As you budget, leave a percentage you can use however you like. This removes the burden and imaginary boundaries you have when you must follow a budget, and can be termed as paying yourself for a hard month’s work. The same goes for your business. Although its where you get your personal finances from, it’s vital that you pay yourself. Paying yourself first motivates you, adds work incentives, increases savings for you and your business, and shows investors that you are committed to your business and personal growth. If you have enlisted the services of an accountant, you can ask them to help you determined this, so your paycheck doesn’t negatively affect the company.
Running your business may be different from running your personal finances, but the principles are the same. If you make the wrong financial decisions, your company will suffer the same way wrong money decisions hurt your personal life.