Small businesses are the lifeblood of the U.S. economy – driving innovation and job creation. In 2020, Oberlo reported that there were 60.6 million small business employees in the U.S., which is nearly half (47.1%) of our country’s workforce.
five financial management tips for small businesses to ensure your business is run successfully
1. Create a budget – and stick to it
Budgets help business owners create a financial roadmap and navigate the streets of success. Through budgeting, business owners will see the full picture of available capital, get snapshots of incoming revenue and plan the best way to offset the cost of expenses. According to Clutch Co., 43 percent of businesses spent what was budgeted in 2020, while only 19 percent spent less than what was budgeted.
2. Bank on startup costs
Starting a business is exciting, but it can be costly. When determining how much to set aside to cover startup costs, it’s important to be realistic and wholistic. Office space, equipment, payroll and inventory are common anticipated costs, but it’s important to also plan for legal fees, software costs, incorporation fees, marketing and website expenses and corporate taxes. Here are a few important costs to consider:
- The filing fee to incorporate a business can range from $50 to $725. However, the incorporation fee is under $300 in most states.
- It’s best practice to keep the marketing and website expenses to 10% of your overall budget.
- Under current federal law, corporate income tax is a flat rate of 21%.
3. Roll over funds for retirement
It’s natural for small business owners to be inclined to invest their profits back into the company. Remember to also invest in yourself. It is recommended to transfer no less than 15% of a business owner’s profit into a retirement fund, such as a tax-advantaged retirement savings plan.
4. Establish an emergency fund
There is no better case study on the importance of establishing an emergency fund than the COVID-19 pandemic, which drastically affected the business economy. However, even in a typical year, companies cannot expect to receive consistent sales month-to-month. By having an emergency fund in place, businesses have the financial security needed to offset costs in down months. It’s recognized that investing in an emergency fund is often difficult on a smaller, fixed budget, but there are ways to do so without sacrificing too much available cash. It is best practice to have between 3 to 6 months of expenses available for use in an emergency fund.
5. Invest in the best business insurance
Accidents can happen at any time, and when they do, business insurance protects companies from damages they’d otherwise have to pay for out-of-pocket. Business insurance not only covers damages, but it also saves owners time, money and stress. While business insurance is required in most states, it’s valuable to more than just the health of a company. Depending on the business coverages, it can also greatly benefit customers and employees. Contact your Rural Mutual agent to determine the best small business insurance for your company.
Knowledge is the key to success. The more business owners know about their finances, the better prepared they’ll be to make smart money management decisions.
The information provided in external website links is for general informational purposes only and does not form any recommendation or warranty by Rural Mutual Insurance Company or its affiliates.
