Having a great idea is just the first step to building a successful business. Owning a business is hard work and requires constant management but, if done successfully, it reaps big rewards. Here’s what every business owner should know:
Manage Your Cash
For almost any business, cash is king. This is especially so for a small business. Having cash in reserve provides companies with liquidity. Unexpected events, such as a downturn in the economy or an unforeseen hardship, allows a business owner to use their cash reserve to pay employees, suppliers and vendors. Even profitable businesses can fail when cash is not managed properly. One common way that a business owner can infuse their business with cash is through accounts receivable financing, also known as factoring (https://www.expocredit.com/blog_articles/consider-factoring). This will provide a business owner with improved cash flow so that they get the security they need.
A business owner’s job is never done. The best way to stay on top of an ever-growing to-do list is to stay organized. Fortunately, technology streamlines even the most overwhelming tasks. So, take control of your inbox, find a note-taking platform, and minimize your paper load by going digital and scanning your paperwork. Most importantly, find a system that helps you manage tasks. As your to-do list grows, a system that simplifies and creates order will be a life-saver.
Keep Track of Your Finances
Consistently and accurately keeping track of your accounting is one of the most important tasks of running a business. Business owners can make better day-to-day decisions when they are armed with a snapshot of their finances. There’s a spectrum of technology platforms out there. Find a process to keep your books organized; it’s critical to managing a business.
Understand Your Margins
Revenue and cash flow are important, but understanding your profit margin is critical. Net profit margin is calculated by taking your total sales, subtracting your total expenses and dividing by total revenue. You can use an online calculator like the Omni Calculator to help you. Some companies may have high revenue, but the actual profit may be low.
Determining the right profit margin for your business depends on your industry. For example, the alcoholic beverage industry has a relatively high profit margin (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html) of 21.18 percent while the furniture and home furnishings industry is lower, at only 5.89 percent. Understanding the profit margin of your business is essential to understanding the value of your company. It helps you grow your business as well as secure financing when needed.
Plan for a Rainy Day
Every business owner knows that unexpected events can occur. Having an emergency fund to cover expenses and continue operations can make or break a small business. Use your most profitable months to set aside money and most importantly, don’t be tempted to use your emergency fund for non-urgent matters.
ExpoCredit provides short-term financing to domestic and international companies in need of cash flow. For more information or to apply online visit https://www.expocredit.com.