Financial Habits for Success in Building a Small Business

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Financial-Habits-small-businesses

There are several publications on habits or attributes of highly successful people but we are here focusing on successful or would-be successful small business enterprise. A small business enterprise is that one that has grown from micro to SME and to a medium sized enterprise and then a large scale business employing hundreds of people and turning-out over a billion Naira in turnover annually.

Here also we are focusing only on financial habits. We shall look at other habits that are expected to complement the good financial habit to create an overall success in business.

Those who follow the best practices consistently outperform others based on annual revenue and report higher levels of satisfaction with their decision to be a small business owner. These financial habits will equip small business owners with a new perspective to better help them prepare for the future, without sacrificing their client relationships, craft or team.

 

Regularly review your finances

Every business has a natural ebb and flow, a rhythmical pattern of income and expenses. Sometimes it’s due to seasonality. Sometimes it’s due to the duration of projects and the contract terms. In any case, weekly and monthly financial reviews are an exercise in understanding the frequency and scale of your business operations and the extent to which your business may be growing or at risk due to clients who pay late.

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Maintain a budget

A budget is simply an expectation for business results. At the beginner level, make a budget on the first day of the month to estimate how much income you’ll receive that month and how much you’ll pay out in expenses. Then review the budget compared to actual results at the end of the month. Rinse and repeat. You’ll get better at budgeting. And because of budgeting, you’ll make more informed decisions and identify potential problems before they occur.

 

Pay your debts and yourself

A Naira of revenue isn’t a Naira of profit — and neglecting this notion can dig a hole 10 feet deep for your business. Declare profit only after paying off debts, all you are owing including your workers, and then pay yourself.

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Proactively reduce debt

Sometimes debt is good. You take on debt in the short-term to enable longer-term health and growth for your business. However, unnecessary debt is a drain on your business. And more importantly, once you have business debt, it’s important to make consistent payments, and proactively reduce the principal amount.

Pay yourself a salary from business earnings

The term “salary” may not apply to your business. You don’t have to send yourself a regular bi-monthly paycheck. Instead, you can pull money out of your business account at regular intervals to set aside your personal income. When you pay yourself, it forces you to think about your business and your personal income separately.

 

Establish an optimal business structure

Common business structures are sole proprietorships, partnerships and corporations. Each structure has different legal and tax implication. If you’re not sure which structure is best for your business, you may want to seek professional advice because of the expense involved in changing and maintaining a business structure.

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