Small Business Money Management: Three Healthy Financial Habits

Small business is the cornerstone of the American economy. Despite the press coverage that large companies receive for setting new market capitalization highs, or for causing a stir about where they’re locating their new headquarters, small business as a group is the largest employer in the United States. This means that most people rely on small business for their wellbeing and livelihood. As the owner of a small business, your success is their success.

No matter how good a business idea is, the business may fail without proper financial management. Maximizing a company’s finances requires strong analytical and decision-making abilities. To help reduce some of the stress, below are three healthy financial habits that will help any small business owner:

  1. Keep your Business and Personal Expenses Separate

    For many small business owners, the line between business bank accounts and personal bank accounts is blurred at best. Small business owners frequently use their business credit card to pay for personal goods such as a TV or vacations or tap their personal accounts to pay for business expenses. Commingling bank accounts and spending can create tax issues for you and your business and expose you to personal liability.

    First, being unable to differentiate what was spent on the business from personal goods and services can prove to be a major headache at tax time as you attempt to rectify the accounting. Additionally, the commingling of funds can result in inaccurate financial statements which can create tax liabilities going forward if you or the company were to be audited by the Internal Revenue Service.

    Second, many owners believe that because the business is a separate corporate entity, such as a limited liability company, they are protected from personal liability. While this is partially true, this legal protection can quickly be undone by a showing that the business’ funds were treated as personal funds. Thus, to protect your business and yourself, ensure that your business and personal expenses are kept separate.

  2. Pay all Bills on Time

    Ensuring that all bills are paid on time will save you time and money in the future. Late payments can result in additional fees including interest, and may even result in damaged credit. This will increase the cost of borrowing and may even make obtaining credit in the future more difficult. Whether you set reminders or use post-it notes around the office, make sure to pay your bills on time.

  3. You don’t Always Need Top of the Line

    When buying new equipment for the business, remember that the top of the line equipment is likely unnecessary. Rather than buy a brand-new truck that will quickly be used and abused by you or your employees, consider a one or two-year-old truck that costs substantially less while providing the same benefit to your business. Similarly, if you’re getting computers for general office use such as email, word processing, and Excel, you won’t need the newest and shiniest ultrabook. By focusing on value and meeting your needs rather than your wants, you can ensure that your business earnings are preserved.