How to optimize small business finance

| October 5, 2018

Statistics emphasize that more than 80% of small businesses cannot overcome their cash flow problems. This teaches us an important lesson- having a brilliant business idea is not enough to succeed in this oversaturated business world.

To stay relevant and avoid the most common mistakes small businesses make, you need to learn how to manage your finances and build a functional business plan.

Here are a few steps you need to take.

Have Separate Bank Accounts

When launching a business, one of the first things you need to do is to separate your private and business finances and bank accounts. Unfortunately, it seems that businesses still don’t see the importance of this strategy. To save their time and minimize the cost of bank fees, they usually decide to use their personal credit cards for business purposes.

However, this has never been a good idea and here is why.

First, if your transactions are done via your personal bank account, the tax office won’t treat you as a company, which may later lead to some additional problems.

Second, you need to take your taxes into consideration. To pay them, you need to analyze every dollar you’ve spent or earned. And, if you do all your transactions from a single bank account, separating your private expenses from business ones will be extremely nerve-racking.

Third, using your name and personal account for business transactions will make you look pretty unprofessional. Your clients want to know that they’re hiring a legit company.

Don’t Apply for a Bank Loan if You Don’t Have to

If there was one phrase that would describe all small businesses, that would probably be the lack of cash. Sure, as your expenses are constantly rising, you probably think that applying for another bank loan will change things.

That’s not true.

Every time you take out a new bank loan, it may affect your credit score, especially if it’s already poor. Also, your chances to be approved for a new loan in the future also weakens. Namely, before approving you, creditors examine your debt to income ratio to see how much of your revenue goes to your debts each month. It takes them weeks to do a thorough analysis and, if they’re not satisfied with what they see, they will refuse you.

So, bank loans are great for those businesses with an impeccable credit score. If you don’t have to take them out, then don’t. There are numerous alternative funding options that may give your finances a boost, such as peer-to-peer funding, crowdfunding, government grants, invoice factoring, or small business loans.

Automate your Business Processes

Repetitive tasks can prevent your employees from focusing on their major tasks and affect their overall performance. Obviously, the lack of workplace productivity leads to greater expenses.

To prevent this on time, you should know how to save time and money on your business processes.

Start with your digital marketing strategy. The most amazing thing about digital marketing is that it can be fully automated. To synchronize your social media accounts, use social media management tools like Buffer or Hootsuite. Give your email marketing campaigns a boost with MailChimp,, or ActiveCampaign. Not to mention numerous SEO tools like Moz, HubSpot, Majestic SEO, or Ahrefs that will improve every aspect of your SEO campaign, from doing keyword research to content marketing.

Optimize your financial processes. You can leverage direct debit solutions to make repetitive tasks like collecting recurring invoices easier. Use cloud-based accounting software to track your business’ financial health in real-time. Tools like QuickBooks, Xero, or FreshBooks will classify your credit card transactions, analyze your financial situation, and remind you to pay your bills and taxes on time.

You can improve your customer relationship management, too. To provide your target audience with an exceptional experience with your brand, use AI-powered chatbots that offer real-time customer support. There are numerous social media monitoring tools that will notify you of your brand/product mentions and help you give instant feedback. Finally, instead of wasting your time and money on using different platforms and manual data analysis, invest in client reporting tools that will speed this process up.

Outsource your Workflow

Another amazing benefit of workplace automation is that it improves people’s communication. We’re living in the era of sophisticated and affordable IT solutions and not using them means missing out on the opportunity to save both your money and time.

Instead of spending money on phone calls, you use IM tools.

There are also numerous project management tools like Basecamp, Asana, and Trello that give your team a chance to actively participate in projects, share files, and comment on posts simultaneously.

Similarly to the chatbots you use to improve customer support, you can also use AI-powered bots like Spoke to answer repetitive internal questions for you. It can be integrated with all communication channels your employees use, from SMS and email to Slack.

Not only do these tools boost your team’s productivity, but also give you an opportunity to hire remote workers. This way, you can hire the most experienced people in your niche, irrespective of their location and time zone. Above all, you will cut corners significantly. Namely, statistics tell us that hiring remote workers instead of building an in-house team can help you save up to $11,000 a year.

Scale Down your Expectations

Big is the only way to succeed. However, if you start losing the sense of what’s possible and what’s not, this would probably be your highway to hell. When building a business plan, you need to know how to allocate your resources smart. And, smart is the right word, as it’s the abbreviation for everything your financial goals need to be- specific, measurable, achievable, relevant, and timely.

Ask yourself whether your office needs to be that big. Do you really need that state-of-the-art equipment or fancy business parties? What about hiring people? Should you build a team of 50+ employees or simply surround yourself with the people vital to growing your business and then expand your team gradually?

I know, it’s not what you expected, but it’s the only way to stay viable in the first few years. After all, some of the most famous world’s conglomerates, including Amazon, Apple, Google, and Disney started in a garage.

Create Realistic Financial Estimations

To optimize your finances, you first need to understand them.

Have a projected balance sheet, the one including stuff like your assets, liabilities, and equity.

Take your business’ costs into consideration. Even though most of your costs are variable, there are numerous fixed expenses you can easily predict, such as your insurance costs, legal fees, salaries, communication expenses, rent, and utility bills.

Do thorough market research. Estimate the size of the market, the portion of the market you can address, the number of your customers, the percentage of people leaving your site without taking any action, etc. These are all components that may significantly influence your financial health.

These figures allow you to build a strong financial plan, create data-backed financial projections, and make the right decisions in the future.

Most importantly, don’t forget to update your financial plans and estimations. They change parallel with your business growth.