At the end of the day, business success is measured by how much money you earned vs how much you’ve lost. As simple as that. After all, money is the lifeblood of every modern company, no matter how much it might not motivate you as a person, or how much more important other aspects of your company are to you. This simple truth begs the need for small business owners to take finance management seriously and do whatever it takes to keep the ship afloat.

If you do your job right, you might even expand and venture into new markets. If nothing else, you will have at least paved the road to a financially-stable future for yourself and your employees. Here are the five rules of managing small business finances.

It all starts with a financial plan

First things first, you need to have a sound financial plan at your side in order to plan, prepare, and effectuate every strategy. From PR and marketing, to human resources, procuring office equipment, driving product innovation, all of these tasks need a solid financial foundation if they are to come to life and deliver the results you’re looking for.

You can start creating your financial plan by gathering relevant insights such as your current financial situation, your mid-term and long-term goals, economic trends, consumer trends, and competitive trends. Next, focus on determining your cash flow needs and work towards ensuring liquidity for the long haul.

Manage your operating capital

cash flow

Cash flow management is one of the most important elements of a successful 21st-century company, because without enough operating capital, you would have no way of funding your day-to-day operations, meeting your payroll expenses, or keeping the lights on in the office, for that matter. There are two ways you can manage your cash flow effectively: by lowering operating costs, and maximizing revenue.

Firstly, focus on cutting superfluous expenditure from the books by eliminating non-essential processes, optimizing your payroll expenses, and minimizing overhead costs. Next, you can focus on directing finances towards your day-to-day operations in order to make them more efficient, procure new equipment, or even bring new staff into your company that will help you grow and expand your business over time.

Make your money work for you

One of the most important steps towards growth and long-term solvency is investing. Your entire business is an investment, and contrary to popular belief, you really do need to keep reinvesting in the growth and expansion of your business if you are to reach your long-term goals. To achieve this, you will need to create a sound investment plan, and obtain the necessary information that will help you ensure a positive ROI.

You can start by monitoring the economic drivers in the market, keeping track of the gold price and other precious metals and their effect on currency fluctuations, after which you can turn your attention inward and assess which departments you should invest in next. For instance, if you are looking to bring new visitors to your website, then a good business decision would be to invest in growing your marketing department and bringing new marketing strategies to life. You can use this cost-effect mindset to determine the most lucrative investment opportunities in your company for maximum long-term ROI.

Adhere to smart financial forecasting

financial forecasting

Financial forecasting is the art and science of monitoring and predicting industry and consumer trends for the upcoming season in hopes of meeting expectations, preventing financial difficulties, and ensuring positive financial returns. Needless to say, this is one of the most important elements of a financially-stable small business, as it gives you the opportunity to prepare for the influx of new customers or the potential dry spell depending on the season.

You can do this by mapping out the year according to consumer trends and typical fluctuations, monitoring high-yield seasons and slow quarters. This will allow you to lead a more versatile financial strategy that will allocate resources according to the demands of the market.

Don’t forget to pay your taxes

taxes

Last but not least, tax management can help you run your small business more efficiently over the long term, as paying your taxes on time can come with numerous benefits. Most importantly, tax management will help you stay off the IRS’s radar and build up a positive credit score so that you can apply for small business loans.

What’s more, being tax-compliant will help you obtain tax breaks and government subsidies, which will go a long way in running a profitable business without fear of financial setbacks. If you do find yourself in need of financial aid, your solid credit score will make sure you get a favorable business loan that will drive your company forward.

Finance management is the very core of a profitable business, and the very essence of solvency in the modern business world. By following these five tips, you will have no problem avoiding common financial pitfalls while paving the road long-term success in the industry.