Developing strong financial habits is key to any small businesses success. Nowadays with so much data collected we can now draw comparisons between successful business owners and the financial habits they share. Those who continually follow the best practices are consistently outperforming those who don’t. That said here are four financial habits all successful small business owners have in common.
1. Establish The Right Business Structure
Many freelancers and or small businesses often like to operate as a sole proprietor until they get the ball rolling. If you plan to expand your business beyond yourself it’s usually a good idea to incorporate as a legal operating entity. Each legal structure has its own legal and tax requirements – as well as benefits.
SBA.gov does a great job in summarizing which business structure will work best for your company. By choosing your business structure you’ll set the foundation for your finances moving forward. Your business can reap tax benefits and deductions by choosing the right structure. On the contrary you could expose yourself to unnecessary expenses that will hurt your bottom line if you choose the wrong structure.
2. Maximize Deductions
Every business regardless the size will look to reduce the amount they pay to Uncle Sam come tax season. If you aren’t doing this you mind as well be throwing your hard earned cash in the fireplace. Tax deductions and write-offs essentially reduce your taxable income.
Make sure your accountant knows what expenses qualify for tax deductions and make sure they are very diligent in making sure they are written off. If you feel like you’re “cheating the system” you’re not alone. However it’s one of the biggest benefits of incorporating your business so you might as well take advantage.
3. Standardized Processes
Keeping organized accounts is one of the most important financial habits you need to adopt. Like most things in your operation you need to create a standardized process that can be scaled and implemented into multiple teams. This is also true for your finances. First and foremost you should look to adopt cloud accounting solutions that offer features like online invoicing and expense management.
These platforms will help you standardize your financial processes. In addition your team can access and manage these accounts from anywhere so you’ll always be in the loop. If your business is still keeping paper invoices in filing cabinets and receiving paper checks your only creating more work for yourself down the line. Many online payments platforms will offer tiered pricing structures that easily scale with your business.
4. Keep Debt Minimal
Traditional financing options like venture or angel funding can take a long time to acquire. That’s why many small business turn to small business loans or business credit cards so they can quickly access capital. This often times results in the small business taking on debt. Having debt is common but it’s not good to keep around for too long.
Once you take on debt you need to consistently make payments to reduce the principal amount. The most successful business owners actual develop a plan for paying off debt before they even take it on by referencing their financial forecasts. I suggest you do the same if you decide to finance through loans or credit.
While there are many other financial habits worth adopting it’s always best to adopt a few at a time. Changes don’t happen overnight and habits take a long time to develop. That said it’s important to get started sooner than later. If you’re a small business owner I strongly suggest adopting the habits above. You will not be disappointed.