You can get online and search for ways to manage your finances as a small business owner and find thousands of ideas. Most often, you will fall into a deep abyss immersed in lots of finance words like cash flow, bottom line, profits, tax credits, and reduction of expenses. There will be talk of investing in your business and keeping a close rein on accounts receivable and accounts payable. And that’s all great advise, however there is one aspect of small business finance that doesn’t get enough attention. In fact, I think that a recent article in Entrepreneur is the first time in a l-o-n-g time that I have heard it mentioned. Know what that is?
Guest writer, Vinil Ramdev, made saving the No. 2 way for small business owners to manage their money, right after budgeting. It sounds like a simple thing, but if you ask the next 15 small business owners what kind of funds they have in their business savings account, you might be surprised at the responses.
In an article in Forbes, Cheryl Conner says this:
What is the greatest cause of business stress and eventual failure? Generally, it’s not a problem on the balance sheet. It’s the lack of sufficient operational cash.
She compares business owners to the greatest investors of all time saying how the smart investors’ money spends a great portion of its time sitting as cash, not investments. She says those investors know something that many small business owners don’t realize: they must “be strongly invested in protecting their liquidity by maintaining sufficient buffers of cash.”
Why make saving a priority for your small business?
Because The Payroll Department offers bookkeeping services, we hear the concern from small business owners over the all-important issue of sufficient cash flow. Having the cash to cover operations is one reason to set money aside, but there are other reasons, too.
Save for future opportunity. When a new opportunity comes along, business owners want to jump on it. If you have money set aside, it makes taking the leap easier and less risky. If the new leap requires an investment, you aren’t cutting into cash flow, pushing off hiring new employees, or taking care of payables, either. A buffer provides you opportunity.
Save for unexpected expenses. It happens. You forget about a quarterly bill or annual subscription and suddenly, your cash flow is in jeopardy. You might always remember your expenses, but what would happen if one of your service trucks is damaged, or the water main breaks in your facility? Eliminate the fear of the unknown. A buffer gives you peace of mind.
Save for expansion. Things are going great and you need to relocate into a larger space and hire new employees. All those things are wonderful, but they also mean there are additional expenses. A buffer allows you to steadily, and confidently, grow your business.
Save for investment. Replacing old equipment or investing in equipment that will allow you to diversify your products or services is part of growing a small business, too. In addition, the time might be here to provide additional benefits for your employees. Planning for that kind of growth gives you the space and time to make it happen at just the right moment. A buffer means that you can take advantage of bargains and get just the right services and tools.
How to save while operating a small business
It takes a concentrated, conscious effort to set savings aside, whether that is for personal or professional reasons. Savings don’t just happen. Here are four easy ways you can find extra cash in your business:
- Buy used. That goes for office furniture, equipment, vehicles, and whatever else you can find. The difference between new and used can be substantial. To make this strategy effective, you must only purchase what you need, not everything you want. It’s not just “make-do,” either. If you look at the “cool factor” in office décor today you will see a lot of salvaged materials, upcycled finds, and second lives given to things found tossed in the garbage. A little imagination and elbow grease can make something ugly beautiful and something broken operable again.
- Take advantage of community resources. This can be in the form of tax credits from your local economic development organization or even an energy audit from the electric or gas supplier. Every bit of savings wrung out of expenses will give you extra cash to set aside.
- Be smart with your money. Opt for no-fee bank accounts and get rebates and rewards from your routine purchases. It could be cents off at the gas pump or free office supplies. Review your business credit card accounts for cash back or rewards that save you money. Watch the pennies and set aside a set percentage or dollar amount each month. Even a small amount will accumulate over time, giving you a buffer that can make sleeping easier and your future brighter.
- Be strategic. It might seem counter-intuitive, but outsourcing services is another great way to save yourself money. For instance, instead of hiring an in-house bookkeeper or payroll processor, you can outsource that to The Payroll Department. You have a set monthly expense that does not include payroll taxes, FICA costs, or other benefits like health care costs. In fact, the difference in the costs can be your monthly savings amount that grows month after month. In addition, using professional services, you eliminate the potential problems – and costs – that can come with improperly reported or remitted payroll taxes or inaccurate bookkeeping
Tighten up your ship to build a buffer so the future is smooth sailing. The Payroll Department has years of experience and would love to help you on your way. Contact us today at 317-852-2568.
-Elaine of The Payroll Department Blog Team