Running a small business is a full-time job and often requires a business owner to fulfil multiple roles, including managing finances. Whilst this isn’t one of the most exciting roles of business ownership, it’s one of the most crucial in determining the success or failure of any business.
Finding finance for your small business can be challenging and daunting. However, with the right preparation and research, it can be a simple procedure. When choosing the best alternative to ensure favourable finance terms for your business, it’s important to think strategically about the long-term goal of the business.
We have created a list of the do’s and dont’s for small business financing. If you are looking to invest finance into your business, then read on to make sure you are making the right decisions.
Do your research
Research should be the first step for a business and its financial planning. Without a proper plan of your forecasts or budgets, you can run the risk of making poor financial decisions, such as overspending. It is common for businesses to go into large amounts of debt with no real plan behind it, and a continued mismatch in cash flows can endanger the long-term viability of your business.
Do keep track of your financial records
Keeping track of financial records is a must when it comes to borrowing money. Most lenders will want you to supply organised documents when applying for finance such as receipts, statements, past bills, invoices etc. Managing this paperwork is easy to do & will save you time in the future. There are software accounting tools that can make this task easier, such as Sage or Xero.
Do borrow what your business needs at the right time
Just because you are eligible to borrow large amounts of money, doesn’t mean it is the right thing to do for your business. It is a good idea to see a financial planner to understand how much you need to borrow and for what purpose such as the hiring of new staff, building expansion, equipment etc. Be smart with your strategy & plan the perfect time to borrow. Borrowing too early might mean it is spent on low-value things and spending too late might mean you put financial stress on your business.
Don’t drown in debt stress
Borrowing money can be stressful, but it is all apart of the business journey. It is important for business owners to understand that risk can be high especially with small or newer firms. Therefore, in the beginning, don’t stress about finances, but focus on preparing your business plan, budget and financial forecast. With a well thought out business plan, documentation and belief in your firm’s mission, you will get the right amount of money from the right investors and in turn a successful future.
Don’t forget tax
Running a business can be very time consuming, and sometimes paying taxes can be put to the end of your priorities. The Australian Tax Office is coming down a lot harder on businesses with overdue tax debt and new tax laws mean there are some serious penalties for not paying.
Keeping your tax obligations in the back of your mind throughout the year will make it much easier when the time comes to do all the small business finance paperwork. Software such as Cloud Computing can simplify this process, reducing the amount of time and errors on your tax return.
It is also worth considering hiring a tax professional at tax time to make the whole process go a lot quicker, preventing any costly mistakes and even save you a bit of money in the long run.
Don’t mix business and personal finances
It is important to keep personal and business finances separate, this will save you from a lot of headaches down the line.
Creating a separate business account will give you a separate credit history specific to your business and will (probably) give you better borrowing power when looking for small business finance options. At tax time this can also make it easier to sort your deductible expenses.
Small business financing is a very critical part of the business process, do your homework, think ahead and work on your strategy before pursuing a lender. The decisions you make today will impact tomorrow.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
