Business Finance 101

Understanding small business finance basics can assist you in gaining the skills for operating a small business. Knowing how and why you may complete certain business finance tasks is essential in creating a stable financial situation. 

Here are just a few of the basics you should know: 

Keep extra cash available. Unexpected financial circumstances can take a toll on your financial resources, so having extra cash available to handle them can be helpful. It’s recommended that you keep three to six months’ worth of funds to cover all business expenses readily available at all times.  

Determine the price for profit and cost of selling goods and services. Determining the long-term costs of anything that the business purchases helps you accurately plan your financials. This may include costs for goods, services or other materials you need to create your products. Once you determine these expenses, you can set selling prices that earn you a profit. This should include: payroll expenses for staff; operating costs such as utilities, asset and rent; preparing and packaging costs; logistics expenses; mailing expenses. 

Establish where you’re spending money. Categorizing the costs, such as segmenting them by business purpose, can be helpful. Doing this helps you implement proper controls for expenses and calculate overall profit margins. 

Continuously prepare for tax season. No, it’s never fun, but preparing for tax season is important to ensure that all your financial records are in order when the time comes to file taxes. Recording all financial actions as they occur can save you time and effort later. 

Keep excellent business credit. This helps you take out loans, receive approval for funding, acquire insurance policies or purchase real estate. Pay off your debt as quickly as possible and keep the amount of debt as low as possible. Avoid loans with interest rates you can’t afford.  

Create an efficient billing strategy. Managing cash flow as it relates to payment is important to ensure that your business is operating in an efficient and timely manner every single day. An efficient system ensures clients pay you on time and keeps your cash flow in positive territory. 

Knowing the foundations of your business’ financial is essential in running it in a cost-effective manner.