Back in 2000, I started paying close attention to my personal finances after I noticed challenges in managing my money. I began to follow some personal finance websites and started to read books about how to manage my money.
That decision remains one of my best financial decisions to date. I have learned so much about personal finance that I have begun to teach others on how they can better manage their finances.
Now an entrepreneur, there are some personal finance tactics that I have employed in my business that has enhanced my business growth.
Having been in business for more than ten years now, I can declare that the following business tactics, when applied by business owners can go a long way in helping to boost their business growth.
#1 Create a Budget
Many Americans find it difficult to manage their money. In business, as in personal finance, it’s essential to control your expenses with the help of a budget. Having a budget will enable you to track your monthly spending, project your income and stay on track with your finances.
Budgets allow you to also be prepared for any emergencies and unforeseen situations, such as unanticipated costs, investment opportunities, repairs or upgrades.
#2 Manage Your Business Expenses
Like personal expenses, you need to manage your business expenses. Making use of apps and tools like Mint and You Need a Budget, you can set and manage your business finance. These apps and tools can help you:
Work Out Your Business Expenses: This includes everything from your utilities, rent, payroll, insurance, office supplies, insurance, business travel, entertainment, interest on loans or credit cards and other expenses that you make each month.
Figure Out Your Taxes: It’s important you determine your tax rate to avoid getting in trouble with the IRS, which is never fun. It’s advisable to hire an accountant who is familiar with tax law and rates.
Budget and Plan Your Income: After determining your business operating expenses and taxes, any other extra revenue is your net profit. Budget your net profit and ensure you use a large part of it to build your emergency funds to improve and grow your business.
#3 Establish An Emergency Fund
An emergency fund is important for the survival of your business. Whether it’s a sudden equipment breakdown, an unexpected medical or non-medical emergencies or a sudden drop in business sales, emergency funds will help you to shoulder any unexpected event that requires you to spend money.
Experts recommend saving at least three months worth of expenses in your emergency fund. This will ensure that your business will still be able to stand on its feet and run smoothly for at least three months if you run into a financial crisis, till you are able to get things back to normal.
Your emergency funds should be kept in a saving account or any other means where you can have immediate access to it.
#4 Pay Yourself First
To get their operation up and running, many small business owners give up their own salaries during the startup phase. While this is understandable, sacrificing your salary is not such a smart move. It’s always better to include your salary in your initial business plan.
This will give you a true picture of how much capital you’ll need to finance your business. It’s okay to pay yourself enough to cover your basic needs till you reach a break-even point where you can decide to increase your salary.
Some business owners feel obliged to put all their profit back into their business, and they don’t track how much money they actually take out of the business.
Business owners often put all the money they can back into their business because they believe they will achieve a better return on their business than if they use the money investing elsewhere.
We’ve all heard the popular phrase ‘never put all your eggs in one basket’. This is true for business. There are many factors which are outside your control that can have a serious effect on your business. These factors can even put you out of business someday. If you re-invest all the money you have back into your business, and the business fails, you may be left with nothing.
Paying yourself a salary also have tax benefits for some business entities, because it cuts down their business profit.
#5 Improve Your Credit Score
Your business credit score can play a huge role in the success of your business. The credit score of a business helps suppliers, lenders, and other creditors assess whether the business will pay its bills promptly.
Moreover, having a poor credit score indicates that you’ll have a higher interest rate when it comes to bank loans or credit cards. This can be a problem whenever you need to rely on credit, financing, or loans to assist your business scale properly, for instance, purchasing equipment or obtaining a mortgage for an office.
Credit scores of a business range from 0 to 100. 0 indicates a high risk and 100 indicates a low risk. Scores are based on some factors contained in your business credit file.
- Number of trade experiences
- Outstanding balances
- Payment habits
- Credit use
- Trends over time
- Public record recency, frequency, and dollar amount
- Demographics such as business size, Standard Industrial Classification codes and years on file.
There are several simple ways to improve your credit score, This includes, pay bills on time, limit credit usage and keep debt levels on the low, check your business credit report on a regular basis, avoid closing accounts, strive to use credit, correct any mistake and do not use your credit power to hint at risk.
#6 Reduce Your Debt-To-Income Ratio (DTI)
Investopedia defines DTI as, “A personal finance measure that compares an individual’s debt payment to his or her overall income. Debt-to-income ratio (DTI) is a way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts.”
Your debt to income ratio is important because according to the Bank of America “Banks and other lenders study how much debt their customers can take on before those customers are likely to start having financial difficulties, and they use this knowledge to set lending amounts.”
In simple terms, it means that the money you have coming in is more than the money going out and the ratio or all your joint operating expenses do not surpass 36 percent of your monthly revenue.
To calculate your debt-to-income ratio, add up your monthly debt payments, including loans and credit cards and then divide that number by your monthly revenue. Multiply the result by a 100 to get a percentage. For instance, if you spend $1200 every month on debt and have a monthly income of $4,000, your debt to income ratio would be 30%.
If your DTI is more than 50%, you have too much debt because it means you’re spending at least half your monthly revenue on debt. Between 37% and 49% DTI isn’t terrible, but those are still some dangerous numbers.
Your DTI should be lower than 36%. That suggests you have a controllable debt load and left over money after paying your monthly debt payments.
There are several tips to improve your DTI, including living within your means, establishing goals and rewards, saving up, adjusting expenses to income, etc.
#7 Always Have Insurance
Personally, you should have some kind of disability insurance to keep your personal finances afloat in case you experience a terrible accident. The same is true for your business. As a small business owner who has worked hard to attract clients and build your business. You should protect your business, your standings, and your employees. The law demands some degree of insurance. Nonetheless, you shouldn’t stop at just what is mandatory.
It’s sensible to safeguard yourself and your business with the precise type and level of insurance that is appropriate
Business insurance is important, according to Rusell Huebsch, because, “Even if you have a successful business, disaster could strike at any moment and force you to shut your doors. Companies typically carry insurance to mitigate the risk of unforeseen damage…”
There are different types of insurance for your business needs, including, business general liability insurance, business property insurance, business auto insurance, and other coverages.
#8 Search For the Best Price
When searching for personal items like a new phone, outfit, or home, you wouldn’t pay for the first item that you find, right? You would review the prices among different alternatives. How about when making a choice for a bank loan or credit card? You would consider the interest rates before making a final decision.
The same tactics should apply to your business. Whether you are searching for an office space, equipment, company credit cards, loan or vendors, you should compare prices, interest rates, term and conditions to find the best possible deal.
There are also other ways to cut costs of running your business. These may not seem like much at first, but it could save you hundreds, even thousands of dollars that you could add to your emergency fund or use to boost your business growth.