For the very first time, there’s data to clearly illustrate seven financial habits of highly effective small company owners. Centered on a comprehensive study of 1,700 small company owners in the U.S., fewer than one in four owners of small businesses currently adopt all seven financial habits.
Those that follow the most effective practices consistently outperform other small businesses centered on annual revenue and report higher degrees of satisfaction with their decision to be small business owners. These seven financial habits will equip small company owners with a brand new perspective to prepare them for the future without sacrificing their client relationships, craft, or team.
Regularly review finances
Every business has an all-natural ebb and flows, a rhythmical pattern of income and expenses. Sometimes it’s because of seasonality. Sometimes it’s as a result of the duration of projects and the contract terms. In any case, weekly and monthly financial reviews are a workout in understanding the frequency and scale of your organization’s operations and the extent to which your organization may be growing or in danger because of clients who pay late.
Maintain a budget
A budget is just an expectation for business results. At the beginner level, make a budget on the very first day of the month to estimate just how much income you’ll receive that month and just how much you’ll shell out in expenses. Then review the budget compared to actual results at the end of the month. Rinse and repeat. You’ll get better at budgeting. And as a result of budgeting, you’ll make more informed decisions and identify potential problems before they occur.
Save the appropriate amount for taxes.
The money you reserve for taxes isn’t your money. It belongs to the government. That’s why it’s best to set it aside immediately and not have it confused together with your remaining business income. For federal taxes, the safe harbor rule is the friend. Reserve at the very least 90 percent of your prior year’s taxes, and you’ll be penalty-free. A common heuristic is that 30 cents of each dollar you earn from your clients are owed to the government.
Proactively reduce debt
Sometimes debt is good. You undertake debt in the short term to enable longer-term health and growth for the business. However, unnecessary debt is a drain on your business. And more to the point, once you have business debt, it’s important to create consistent payments and proactively decrease the principal amount.
Pay yourself a salary from business earnings.
The definition of “salary” might not affect your business. You don’t have to send yourself a regular bi-monthly paycheck. Instead, you can pull money from the business account at regular intervals to set aside your income. Whenever you pay yourself, it forces you to consider your organization and your income separately.