Thriving in today's highly competitive business market requires more than great products and services, top-notch customer service, and effective marketing strategies. It also requires sound financial management. Understanding your company's finances and making smart decisions can help you manage cash flow and grow your business.

However, developing and practicing good financial habits can be challenging, especially with all the responsibilities of running your small business. To help you get on the road to financial success, Ameris Bank compiled five financial habits that every small business owner needs.

Create a Budget for Your Small Business

A budget is key for managing your small business finances. It outlines expected income and expenses over a set time, like month or year. Creating and adhering to a realistic budget allows you to allocate resources, forecast financial performance, set goals, and avoid overspending. Plus, a budget enables you to better prepare for potential cash surpluses or deficits.

Creating a business budget might seem daunting and time-consuming. However, it is quite manageable with a few straightforward steps. Start by gathering financial documents, including past income statements, expense reports, and cash flow statements. This data will serve as a benchmark for your budget. Next, set specific financial goals for the upcoming period, such as increasing sales revenues/profits or reducing operational costs.

Once your goals are defined, you can input your income sources and expenses into a budgeting spreadsheet or software. Both options are effective, but budgeting software can simplify the process by providing step-by-step instructions, pre-built tools, and customizable features.

Establish and Maintain Good Business Credit

Establishing and maintaining good business credit is crucial for your company's long-term success. It can help you secure business loans and financing, obtain better interest rates, and negotiate favorable terms with vendors and suppliers.

To establish business credit, ensure your business is registered and recognized by the major credit bureaus—Dun & Bradstreet®, Experian™, and Equifax®. Then, regularly monitor your business credit report to track your progress and promptly address any discrepancies with the credit bureau(s). Next, make a point to pay your bills on time. This helps you stay on budget and prevents late fees and potential damage to your credit score. Lastly, establishing relationships with vendors and suppliers that report your payment history to credit bureaus can help improve your company's credit score and profile.

Prioritizing these strategies helps your business build credit and a strong credit score that will benefit you in the long run.

Keep Personal and Business Finances Separate

Maintaining a clear distinction between your personal and business finances is essential. This separation helps you to track and monitor your business expenses, revenues, and profits more accurately and efficiently.

Next, having separate accounts simplifies tax reporting. Separate accounts make it easier to gather the necessary documents when tax season arrives. They also reduce the chance of errors and help you maximize your business tax deductions. Speaking of taxes, separating your personal and business finances minimizes the risk of a tax audit.

You can ensure better, more streamlined financial management by having dedicated bank accounts (savings and checking) and a credit card for your business. This allows for simplified tracking of business income and expenses. Plus, your business credit card can help build your business credit history and provide rewards or cash-back benefits.

Prepare for Expenses and Cash Outflows

Your small business may need capital to cover sudden sale drops, economic downturns, equipment repairs, or taxes. These are some of the many financial challenges that highlight the importance of having access to cash.

To prepare for financial emergencies, consider setting aside money in a designated business savings account. Aim to deposit a specific percentage of your business's monthly income to this savings account, even if it’s small. Over time, this will help you build a financial cushion.

If your emergency savings is low, consider a Business Xpress Line of Credit, a revolving business credit line that lets you borrow up to a certain limit, use the funds as needed, and repay with interest. Once you repay what you draw, the available credit line replenishes.

Monitor Your Cash Flow

You should monitor your business's sales revenues to see which products or services perform best and which might need improvement. In addition to tracking sales revenues, cash flow is another metric on which to keep a close eye. Cash flow provides a picture of the money moving in and out, revealing its efficiency and financial health.

More cash means your small business can buy supplies, pay bills, meet payroll, and pursue investment opportunities. Moreover, adequate cash can help your business stay solvent and alleviate the stress associated with financial hardship.

You can review your business's cash inflows, outflows, and bottom line by checking your cash flow statement. Analyzing this helps your business spot cash management patterns, anticipate shortfalls, and make informed decisions to improve cash flow.

We hope you found the tips and strategies featured in this blog article helpful. If you're looking for more information, we encourage you to explore our business blog, where you'll find articles covering various business topics.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank is not affiliated with nor endorses Dun & Bradstreet®, Experian™, or Equifax®.