Fun fact: your ability to manage your business finances can make or break your business.
This is not up for debate. Having a strong grasp of your financial picture is essential for you to understand where money is coming from and where it is going… and if you need to be doing something different. A weak hold on your finances will eventually lead to entrepreneurship death. But there is hope. If you’ve found yourself in this position, don’t throw in the towel just yet. Losing money is never a good thing – but with a little help and effort on your part, you can recover.
4 Ways to Get Out of the Red
Track Every Expense
Before you roll your eyes at me… just know that I get it. I really do.
You have enough on your plate. The thought of tracking every business expense may just seem like another overwhelming task to add to your plate. However, knowing where your money is going gives you a better idea of how well you’re managing your money.
Whether you decide to use create a spreadsheet or use an app that helps you track your expenses, there are two very good reasons that you should be keeping a watchful eye on your business expenses:
You need a strong level of financial awareness. It’s important that you know when your spending is sending you into the red. You want to also have a clear understanding of areas where adjustments are needed.
Don’t pay taxes that you don’t owe. By keeping track of all of your expenses, you’ll be prepared to maximize your deductions!
Tip: Once you start tracking your expenses, the best way to know if they are aligning with your business goals is to set up a budget. Each month as you reconcile your budgeted amounts vs actual, you’ll have a better understanding of where you can cut back and save money!
Have a solid accounts receivable process
The last thing you want to do, as a business owner, is to leave money on the table. If you’re a freelancer or solopreneur you probably have a good grasp of your outstanding invoices. But even then things can fall through the cracks sometimes. For example, if you’re a freelance writer for a publication that sends you several orders each month, you may not realize that you haven’t been paid for one of your submissions last month.
The best thing that you can do is set up a system to track your invoices. If you’re savvy with Excel you may be able to create an interactive spreadsheet but if you’re not you’ll want to use an online invoicing software to ensure that you’re collecting on all outstanding balances.
Tip: If you’ve been doing business without an invoice tracking system, it pays to retroactively enter your receivables for the past few months – you may be surprised that some of them have not been paid!
Start An Emergency Fund
If you’re in business for yourself, you will definitely need more than just a little extra cash in the bank. Aim to have a business emergency fund of at least 6 months worth of expenses (yes, including your salary) set aside. As an entrepreneur, your income is never stable. Even when it’s really good it still varies from month to month. An emergency fund will help hold you over during times that your income isn’t consistent and falls short of your budget. Once established, having a financial cushion will allow you to continue to focus on growing your business.
You Don’t Always Have to Hire
If you’ve grown to the point of having a team then you have probably already figured out that one of your biggest expenses is payroll. It’s why most small business owners micromanage their teams and try to account for every working hour they’re paying for. One of the biggest mistakes that new business owners make – especially if you don’t have a brick and mortar location – to hire too fast, too soon.
What’s the alternative?
Always consider outsourcing and subcontracting out work first. Many times entrepreneurs rush to hire full-time employees when really they just need a specific project completed. For example, if you have an IT issue that needs to be resolved, you may want to hire a company like ClearFuze Networks to complete the project. Instead of hiring an IT tech that you don’t need on staff just yet. Or if you need copy written for your website or marketing materials, it doesn’t necessarily mean that you need to bring on a copywriter for your company. You may just need to subcontract the project out to a freelancer copywriter like Gen Y Copy. The most important thing is that you make hiring decisions slowly and not on a whim.