4 Smart Financial Habits That Will Help You Grow Your Business
Good financial habits can help you build wealth personally, but they can also give your business a boost. When you’re growth-focused, rethinking how you approach your business finances could make a huge difference in improving cash flow and profitability. As you plan your next phase of growth, consider adopting these 4 smart money habits.
1. Make Saving a Priority
You’ve heard that you have to spend money to make money, but saving it just as important for your business. Having liquid savings on hand can give you a solid foundation for pursuing growth projects.
For instance, say you own a seasonal business and your cash flow tends to peak in spring and summer. If you’re interested in offering a new product or service to try and boost sales during the fall and winter months, your savings could cover your day-to-day expenses or fund your marketing budget as you test the new offering.
One simple way to develop a habit of saving is to automate the process. Start by reviewing your monthly business budget to estimate how much you could regularly commit to saving. At first, it may only be 5% or 10% of your income or a set dollar amount, but the figure doesn’t matter as much as saving consistently does.
Schedule a recurring automatic transfer from your business checking account to your business savings on the same day each month. By transferring the money, savings can more easily become ingrained in part of your monthly operations, and the money is still readily available if a growth opportunity arises.
2. Track Spending Accurately
Letting your business expenses get away from you is easy to do if you’re focused on growth. That said, it can be detrimental to your efforts if you don’t know what–or where–you’re spending each month.
If you have a bookkeeper or accountant who manages the books for you, plan to meet with them to go over your spending records. Review one month to start, then work your way back through the last year.
If you manage your accounts yourself, look for trends, such as expenses that have increased or decreased. Consider where you may be able to cut certain expenses that don’t benefit the business. Then, devise a system for tracking your business spending more accurately.
The easiest method may be linking your business credit and bank accounts to your accounting software. Then, review transactions at least weekly so you know where every dollar is going. At least once a month, sit down and go through your spending again to see what you could eliminate so you have more cash to funnel into growing your business.
3. Set Clear Financial Goals for the Business
When you’re trying to grow, it helps to have a specific plan outlining every step you need to take to get there. If you don’t already have some detailed financial goals in place, it’s time to get into the habit of setting them.
As you establish your goals, start with the desired result you want and then work your way backward. For example, if you want to increase your revenues by 15% for the year, set that as your target and then outline what has to happen for you to hit that target. That plan might include increasing your marketing budget to reach new customers or hiring new staff.
When setting business financial goals, give them a clear timeframe and make sure they’re attainable within that period. Look at how quickly you’ve grown quarterly or yearly as a comparison and use those numbers as a baseline for setting goals. Then, make a habit of reviewing your goals quarterly to track your progress and adjust your plan if needed.
4. Use Debt Strategically
Debt isn’t necessarily a bad thing when it’s used as a tool for driving business growth. For example, you may own a restaurant and want to open a second location or take your business mobile with a food truck. A small business loan could help you achieve both of those ends, and the revenue that your expansion brings in could be used to repay the debt.
The key is having a plan for debt before taking it on to grow your business. That plan should include how you’ll use the funding, whether it’s a loan, line of credit, or business credit card, and how your business will pay it back. This decision is where running financial statements for your business can help.
Updating your profit and loss statement, cash flow statement and balance sheet monthly can help you chart your business’s financial health. It can also offer insight into what kind of debt repayment your cash flow could sustain for the short or long term as you stretch and grow.
Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.