Financial Management 101: Business Owners, Are You Doing Your Homework?

As a business owner, prudent financial management can help ensure your business remains healthy and stable. But what does good business financial management look like in practice? Here are four tips that may benefit business owners while focusing time and effort on the core of the business.

Pay Yourself First

Although it is tempting to sink all your profits back into your business operations, especially for very young businesses, paying yourself first may help you better understand the revenues your business needs to generate to remain profitable. And if your business ultimately does not work out, drawing a salary throughout its life may ensure that your hard work had a purpose and served to improve your life.

Take Advantage of Loans

You may be reluctant to take on debt for similar reasons that you may want to eschew a salary—you do not want to have any loan obligations you may not be able to repay.

Nevertheless, loans may help manage challenges, especially when you are in a startup phase. The proceeds from loans may help you pay personal expenses, purchase inventory or equipment, and hire additional employees, allowing your business to grow more quickly. When you utilize loans effectively, you may be better able to generate the cash flow needed to repay them.

Spread Out Your Quarterly Tax Payments

Sometimes, it might be tough to come up with the funds needed to make quarterly estimated tax payments on the dates these payments are due. In these situations, paying your tax payments on a monthly basis may make it easier to fit these payments into your budget. The amount you pay monthly may be less difficult than having to have a much larger amount when it is time for quarterly payments. By simply adding a line item for taxes to your monthly budget, you may manage the stress that arises from having to come up with tax funds every few months.

Evaluate Investment Expenditures and ROI

Not all investments are clear winners. Without data, it might not be easy to see this. By measuring your expenditures plus your return on investment (ROI), you may see where your money deploys and whether it works as it should. Periodically evaluating your investments may help you discover ineffective methods and allow you to recommit to marketing efforts and other investments that are paying off.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by WriterAccess.

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