When it comes to small businesses, finances are always a top priority. Business owners need to ask themselves key financial questions regularly to keep their business running smoothly.
Today, we will discuss some of the most important financial questions small businesses should be asking themselves. We’ll also provide tips on how to stay on top of your finances and ensure the success of your business.
What Are the Different Types of Small Businesses?
There are many different types of small businesses, each with its own unique financial needs. “The most important key with a small business is to understand the financial needs of your specific business type and plan accordingly.” states Chris Gadek, Head of Growth at AdQuick. Some common types of small businesses include:
- Retail businesses: Conventional businesses have high inventory costs and need to account for sales tax. They may also need to take out loans to cover the cost of inventory or expansion.
- Service businesses: Usually has low overhead costs but may need to invest in marketing and advertising. They may also need accounts receivable financing to help with cash flow.
- Manufacturing businesses: Typically have high overhead costs and need to account for the cost of raw materials. They may also need to take out loans for equipment or expansion.
- Online businesses: Routinely have low overhead costs but may need to invest in website development and hosting. They may also need to pay for online advertising.
Now that we’ve discussed the different types of small businesses, let’s move on to the financial questions you should be asking.
What Are Your Business Goals?
According to Stefan Sharkansky, President of Personal Fund, “The first step in creating a sound financial plan is to establish your business goals.” What do you want your business to achieve in the short-term and long-term? Once you have a clear idea of your goals, you can start working on a plan to achieve them.
The things you should focus on are:
- Increasing sales.
- Expanding into new markets.
- Launching a new product or service.
- Increasing profitability.
- Reducing expenses.
What Are Your Sources of Income?
The next step is to identify your sources of income. This will help you understand how much money you have coming in and where it’s coming from. Start by itemizing the following:
- Sales revenue: Money you make from selling products or services.
- Interest or investment income: Income you make from interest, dividends, or capital gains.
- Grants and loans: Funds you receive from grants, loans, or other forms of financial assistance.
- Government contracts: Payments you garner from government contracts or other agreements.
Now that you know your sources of income, you can start looking at ways to increase them. “If you’re relying heavily on sales revenue, you may want to focus on marketing and advertising to drive up sales,” advises Matt Miller, Founder and CEO of Embroker. “Whereas if you’re relying on interest or investment income, you may want to look at ways to invest more money.”
What Are Your Expenses?
Now that you know your sources of income, it’s time to take a look at your expenses. This will help you understand where your money is going and where you can cut costs. Common expenses for small businesses include:
- Inventory costs.
- Marketing and advertising.
- Office expenses.
- Employee salaries.
What Is Your Cash Flow?
Your cash flow is the amount of money coming in and out of your business each month. This number is important because it helps you understand when you need to make more sales or cut costs.
To calculate your cash flow, simply subtract your total expenses from your total income for each month. For example, if your total income in January is $100,000 and your total expenses are $80,000, then your cash flow for January is $20,000.
What Are Your Outstanding Debts?
Your outstanding debt is the amount of money you owe to creditors. This number is important because it can impact your credit score and make it difficult to get a loan.
To calculate your outstanding debt, simply add up all of the money you owe on loans, credit cards, and other debts.For example, if you owe $50,000 on a loan and $15,000 on a credit card, then your outstanding debt is $65,000.
Important Financial Questions for Small Businesses
The most important financial questions for small business owners are:
Q: How much money do I need to start my business?
A: The amount of money you need to start your business depends on the type of business you want to start. For example, if you want to open a brick-and-mortar store, you will need more money than if you wanted to start an online store.
Q: How much money do I need to keep my business running?
A: The amount of money you need to keep your business running depends on your expenses. For example, if you have a lot of inventory costs, you will need more money than if you have low inventory costs.
Q: How will my business make money?
A: Businesses make money by providing goods or services in exchange for payment. Consider that you may want to sell products online or provide consulting services.
Q: What are my long-term financial goals?
A: Long-term financial goals are the goals you want to achieve in the future. You may want to buy a new office or expand your business into new markets.
Q: What are my short-term financial goals?
A: Short-term financial goals are the goals you want to achieve shortly. For example, you may want to increase your sales by 20% in the next year.
Final Thoughts: How to Keep Your Business Running Smoothly
The most important thing you can do to keep your business running smoothly is to stay on top of your finances. Here are some tips on how to stay on top of your business finances:
- “Review your expenses and income regularly,” recommends Serdar Ozenalp, Co-Founder and Managing Director at Ocoza. “This will help you identify areas where you can cut costs or make more sales.
- Make a budget and stick to it. This will help you ensure that you are not spending more money than you have coming in.
- Stay organized. This will help you keep track of your finances and make it easier to make decisions about your money.
- Seek professional help when needed. This will ensure that you are making the best possible decisions for your business.
What all of this means, is regularly asking yourself key financial questions and making sure you are aware of your current financial situation. Doing that will ensure that you protect yourself and your business from financial failures.
