Financial tips for small business owners

If you are one of those small business owners who are struggling to manage their finances, here are some easy and realistic financial management tips for small business to help you master your business finances without the need to hire a professional.

Avoid merging business and personal finances

Linking business and personal finances together is a nightmare for most financial experts. Using business funds for personal usage or securing business expenses with some of your personal savings may get the job done at the time being but will surely create a muddle that may require additional loans for stability in the long run.

Hence, keeping both business and personal expenses separate is a wise move. Alongside an account for personal expenditure, create a separate business account and make sure to use the business credit card for all business-related matters. Moreover, as a small business owner, creating a savings account for your business will future proof you to uncertain emergencies that could happen at any point in time.

One of the things accountants rigorously preach about is to strictly stick to the rules of not using personal credit cards and savings for business and vice versa. Merging these is one of the biggest mistakes entrepreneurs make and it will only create a mess that you will regret in the future. Additionally, having separate accounts will ensure a smooth process of  tax-related matters, and your financial advisor or manager will thank you for making his job easier.

Keep records of your spendings

Losing a trail of the business expenses after a certain period of time is very common among many small business owners. Stacked up bills and other miscellaneous expenses are the results of someone not recording their expenses. This ultimately leads to more concerning issues such as overspending and using the business funds for non-business matters.

Recording your expenses will not only force you to stick to your budget but also assist in meeting your financial goals. So grab that pen and paper and start tracking your expenditures. Additionally, you can make use of accounting apps and literature to make recording transactions an easier process.

Create a buying schedule

Creating a purchasing schedule and sticking to it is one of the most important initial business decisions to make. This means not buying any new inventory or making additional payments until and unless the due bills are paid and waiting for financial stability before making any new purchases.

Scheduling your purchases will aid in decreasing tax liability in combination with avoiding the low cash flow occurrence. In order to claim supplies and other business-essential things on your tax return, it is best to buy them by the end of the year.

Cut on bigger expenses

As a small business owner, it is likely that your budget will be limited which is why you need to observe and cut down on some of your large expenses to allow cash flow within the business. This can be done by leaving the large office space and going online for a drastic decrease in real estate expenses. However, if your business requires physical space for operations, then moving into a smaller or less expensive locality might be a feasible option (see how to choose the best business location).

Moreover, labor cost is another large expense that accounts for approximately 70% of the entire business expenses. Therefore, if needed, you can cut down on some of your labor costs. You can easily do that by outsourcing to freelancers or contractors rather than recruiting full-time employees (which can turn into a real nightmare). However, keep a couple of important full-time employees, as new recruits may take time to train which is also an expense. The benefit of contractors on the flip side is that you pay them for the tasks and their time and they technically do not qualify for the company benefits and compensation packages.

Compensate yourself first

It is very common among small business owners to put all their efforts, sweat, and money into the business to make it stand on its feet and running. But what they often forget is that they are the most important asset of the business and hence they should pay themselves first. Surprisingly, only around 50% of the small business owners pay themselves.

Sure, the effort and money you put into your business will turn out to be fruitful and your business will eventually grow. However, an intelligent decision is to think about both ends of the spectrum and keep in mind if the business does not make a profit, and you have not paid yourself either, that will not be a desirable outcome for you.

Thus, always make sure not to forget yourself when paying others, because remember you are the foundation of the business, and compensating yourself will ensure and secure a bright future and shape of your business.

Conclusion

Whether you’re just starting out or looking to tighten up your financial practices, these tips can help you build a stronger, more profitable business. After all, good financial management isn’t about being perfect but about making informed decisions that help your business grow.

Treat your brand like it’s a human

It should have its own personality, goals, name, values, voice, opinions and its own network of friends, and even a few enemies (competitors). Crafting this step first will uniform all of your communications to your audience. It will ultimately mean you retain a highly engaged audience as a result.

Any brand with a loyal following, and good engagement has spent time on this. 

At XITE Energy, our values are around fun, excitement, motivation and health. This is something we amplify across our communications channels, social media, and is echoed by every member of our team. The less ‘business sounding’, but more human your brand is, the more engaging you are.

It really helps to bring your brand alive and makes you authentic. People interact with brands because they mirror similar values to their own and embody personalities that they like. If your goals are to get lots of followers, likes and comments on your social media, this is how to do it.

Plan first

It seems obvious, but you wouldn’t believe how often this gets skipped. Planning will save you time, allow you to be more strategic with your marketing, and essentially get you the best ROI.

A good place to start is planning your annual marketing calendar divided up by quarters (Q1, Q2, Q3, Q4), and tying this in with sales promotions, key dates in your MACRO environment, and when you intend to launch new products. 

This means, ahead of time, you know what resources you need to plan for, how to tease the best social campaigns. Having this down visually means you can plan your budgets, and yearly spend wisely, and sharing this with the whole team means your internal comms will be a force to be reckoned with.

Change is inevitable

The important element to consider here is being aware of which changes you can control, and those you cannot.

Changes you can control are your monthly spend, your team recruits, or anything to do with your planning and decision making.

As for changes you can’t control… I think Covid-19 has done a pretty good job of showing the world what that means.

Being aware of these changes with a PESTLE analysis versus internal forces you can control, will mean you are prepared to be reactive to serious changes in the external environment. You might not be able to control them, but you can be well equipped with a contingency plan and mitigate any worst-case scenarios.

Focus on performance

There are a lot of exciting, big ideas that you may be keen to spend money on. In the beginning, your outgoings will be more than your incoming. So it’s time to manage your own expectations that you probably won’t be making any money anytime soon.

What you can do, is focus on conversions. Plan and do everything with your end-goal in mind, the sale. Base your marketing strategy on performance marketing tactics, for example, SEM and SEO with a measurable goal of driving traffic to your optimised website. Do your due diligence on researching those.

Network and contacts are your currency

As the old saying goes – “it’s not what you know, it’s who you know”. You might already be privileged to have grown up with a network of great contacts through family or friends. However, for most of us, it’s a case of on-going networking, building a base of strategic contacts – LinkedIn and Enterprise League are huge tools for this. A good network can mean you get in front of the right audiences, and the best part is that it’s free.

(Cliché incoming) Don’t run before you can walk

Again, this sounds obvious, but many have learned this the hard way. By going after too much too soon, you can run out of money, and end up bankrupt before you’ve even made it through your first year as a business owner. It’s the harsh truth, but you’re better off planning, testing, and learning what works for you progressively.

Be logical, be systematic

There are logical steps to brand building. That starts with “why”, your USP, brand name, mission statement, core values, target audience, market data, what your goals are, and how you want to be perceived. When this is nailed, this should then inform every. Decision. You. Make.

Know what you’re trying to achieve. Is it reach? Or engagement? In a campaign are you focusing on brand awareness? Or conversions? You can’t focus on both. Needless to say it defeats the object of having a “focus” altogether.

Knowing your objectives will enable you be able to take logical, and systematic steps to get there.

Make trade-offs essential to your decision making

Weigh everything up. Knowing the value of money will be pivotal to your success. Ask yourself questions every day with whether £1k might be best spent up on influencers, or is it best spent on Google ads. Maybe it’s a 60-40% split, or ratio. Work out the estimated ROI before you make your decision. 

Even more important, is knowing the financial value of your time. “Time is money” couldn’t be more true, especially when your outgoings are team wages, and your own wages. Am I making the best use of my time driving to drop this delivery to a customer myself? Or is it more time and money efficient to just spend £4.99 on postage? A good way to rationalise this is through basing your time on around £10 an hour – if it costs less than £10 to post it, post it. You could be spending that hour on making a huge deal.

When building your brand, start from the “why”

Simon Sinek says “It’s all too easy to fall into the trap of marketing your products based on the core product, its attributes, its features.” In our case, this was talking about the naturally sourced caffeine from green coffee beans, the active nootropics for cognitive health and function, and the health benefits with our specially selected B vitamins, supported by empirical research we spent months on during our NPD.

Start with your brand purpose and its reason to exist. Simon Sinek calls this the “why”. Maybe yours is to reduce climate change, to disrupt the status quo, to connect people together, or in our case; to motivate people to achieve their ambitions, or “do what Xite’s you”.

It’s also worth having a think about what brand archetype you want to fall under and get your tone of voice nailed early on.

What works for other brands won’t necessarily work for you

By all means, learn from case studies and examples around you. But it’s a rookie error to assume that because a strategy works for another brand, that it will work for you. Don’t try to mirror exactly what another brand does, because it won’t work. Be unique. And if you’re not unique, what value are you bringing with a new business? If you don’t have a USP, you might as well not waste your time and money on asking people to buy into something they’ve seen before a thousand times.

Conclusion

These tips aren’t magic solutions, but they’re proven “tactics” that have helped countless businesses grow from scratch into healthy brands. Remember, every successful company you admire today started somewhere, probably making the same rookie mistakes you might worry about.