How to Manage Your Business Finances

Being a small business owner is no simple task. There seems to be an endless array of tasks that need immediate attention, and never enough time in the day to accomplish them all. With your brand, product, and networking to focus on, it’s easy for small business owners to neglect the administrative and financial sides of their enterprise. Unfortunately, this is an unforgiving mistake. According to studies by U.S. Bank, 82% of small businesses that failed did so due to cash flow or accounting errors.

Implementing and adhering to good financial management techniques is key to your business’s continued financial success. While one can never stop learning when it comes to efficiently managing the accounting side of your business, the tips and practices below should offer a great start to any small business owner or entrepreneur. We’ll look at these in detail below.

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1. Do Not Fear Lenders & Loans

Many small business owners are extremely apprehensive about any type of credit or loan programs. While it’s good practice to be prudent about taking on debt, a complete aversion to it isn’t productive. Many organisations offer special financing terms or conditions to start-up enterprises or smaller businesses, allowing access to capital at terms that may be more favourable than you think.

Some businesses will outright require credit to function. Restaurants, car dealerships, or any business with revolving inventory will periodically need a line of credit they can access to replenish their inventories. Other ventures with higher start-up costs may need a business plan and loan approval just to get off the ground. Don’t let a good idea or thriving business get hamstrung by a fear of debt. If the terms are reasonable and there’s a proven need for it, credit can grow your business.

Examples:

• DBS Bank Loan: Advertises attractive business loans with competitive interest rates from 10.88% and maximum loan sizes up to S$500,000 of up to 5 years. Taking a traditional banking loan or line of credit is ideal for companies who have a stable source of income or annual sales.

• Validus Loan: Validus is a cost-effective option for many businesses due to its competitive rates that start at 0.67% per month or 8.7% p.a. Additionally, the platform offers competitive cash disbursement, with 90% of approved businesses receiving funding within 48 hours. Loans range up to S$250,000 for 12 months, making Validus a good option for small to medium short-term loans.
• Government Loans: These loans are offered by financial institutions with the government accepting 50% of the default risk. For these loans, the government sets the eligibility requirements and the banks set the interest rates. For example, Enterprise Singapore offers a variety of loans for marine and offshore engineering companies. These loans are harder to obtain, as only companies registered in Singapore with 30% local shareholding are eligible.
• Commercial Business Property Loan: There are over 50+ banks and financial institutions offering business commercial property loans in Singapore. Businesses can finance the purchase of a commercial or industrial property with a property loan, or to refinance an existing loan with better terms. On average, commercial property loans have interest rates ranging from 4% 5% p.a.

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2. Separate the Business & Personal – And Keep Receipts

According to the non-profit agency SCORE, which focuses on small businesses, the vast majority of mistakes made by small businesses are related to bookkeeping. Two of the biggest among these errors are a failure to separate business and personal expenses, and not keeping receipts for smaller transactions. Both can not only create a mess accounting-wise but can also cost you real money come tax period. In some cases, mis-identifying personal expenses as business expenses can result in legal penalties such as fines and/or imprisonment.

Mingling expenses can make it difficult to determine what should be attributed to the business for tax purposes, causing you to incorrectly report your profits. Similarly, not keeping accurate receipts could result in you overlooking expenses that could have been deducted from income. Both can be costly in the long run.  

If your business is already thriving, trying to manage the books by yourself is another mistake. If you have even a moment’s hesitation about whether you can manage your own accounting services, the answer is that you cannot. Professionals such as those at Sprout Asia can effectively manage the accounting end of your business and allow you to get back to running it. Reaching out to a professional can help refocus your priorities and give peace of mind come tax season.

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3. Set Up a Billing Strategy & Enforce It

New entrepreneurs can be so overwhelmingly excited about their sales that they may not focus on their actual billing process for collecting that revenue.  Careful attention should be paid to your billing policies as it is a vital factor to ensure business success.

Clients that are late on payment put your business’s cash flow at risk. Switching to “2/15, Net 30” billing process or offering other incentives for timely payment can incentivise some clients. Have firm rules in place for how delinquent payments can be before service is terminated and stick to them.  Understand that irregular billing and payments can leave you short cash when your business needs it most. Therefore, it is important to set whatever terms necessary to avoid such situations.

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4. Design a Cash Flow Forecast

If you’re in an industry where margins are tight, cash flow forecasts possess a high level of importance. It is recommended that you project your cash flow months out, if not a full year. Anticipate your inventory needs and account for unexpected expenditures on smaller items or repairs and maintenance. You can look successful on paper and still have issues making payments if you don’t manage the ins and outs of your billing cycles.

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5. Develop a System for Taxes

If you’re having difficulty coming up with a lump sum for tax payment annually, it may be best to pursue quarterly payments using estimated chargeable income or the applicable standard for where you do business. It can be easier to manage your payments if you’re tracking them on a monthly or quarterly basis.

Similarly, if you need to set aside sales taxes, develop a system sooner rather than later. Keep a good records system in the event you need to document your calculations and don’t skimp in the hopes that you’ll come into more money later.  

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Sprout with Us!

Keeping up with all the necessary information and processes can be a lot to handle, especially for those already juggling multiple responsibilities. Here at Sprout, we want you to focus on what you do best, while we take care of the rest. We offer professional accounting and bookkeeping services at rates you like, any questions? Feel free to reach out to us with your queries, we’ll respond within 24 hours.