Financial Practices Every SMB Should Use To Failproof Their Business

Key takeaways

• Track your cash flow closely so you always have enough to cover expenses and absorb surprises.
• Separate your business and personal money to simplify taxes and see what your business truly earns.
• Build a reserve of three to six months of operating expenses to weather slow periods.
• Set SMART goals and run a yearly financial health check to guide growth and cut waste.

Why it pays to be smart and savvy about financial practices

Every little bit (and big bit) counts when it comes to starting, scaling, and sustaining a profitable business. And having a firm grip on your finances is one of the most powerful ways to secure your success and outpace the competition, the majority of whom (66%, according to recent research) struggle with basic financial challenges, including paying their operating expenses.

But there’s more to it than just doing better than the “other guys.” Good financial practices offer major wins in other ways, such as:

• Allowing you to forecast revenue and expenses so you don’t get caught by surprise
• Reducing anxiety about slow months and preparing you for spikes in demand
• Providing insights into where and how your business can grow
• Empowering you to set goals and track your progress toward them

Sounds pretty good, right? And the best part is, you don’t need an accounting degree to start taking control of your finances. SMBs from every industry can make use of simple but powerful financial practices, no matter what their experience level.

To get you started, we’ve rounded up the following list of financial practices every SMB should use to maximize success and minimize the chance of failure.

Get to know (and control) your cash flow

Cash flow is the money moving in and out of your business. Managing it well is the single biggest factor in staying open, since poor cash flow sinks up to 82% of small businesses that fail.

And not managing cash flow correctly can take many forms, like having your cash tied up in inventory and not collecting receivables in a timely manner. Even too much success can lead to cash flow problems, with a business that’s growing too fast for you — and your finances — to keep up with.

Cash flow is so important that we devoted a whole post to it, but in a nutshell, aim to always cover your operating expenses, plus a cushion for surprises. That buffer is what keeps a slow month from becoming a closed business. It comes down to managing your profit margins, collecting payments on time, and allocating your resources wisely.

Separate your business and personal finances

One of the simplest habits also happens to be one of the most important. Keep your business money and your personal money in separate accounts.

Mixing the two makes tax time harder and blurs how much your business really earns and spends. It can also make it tougher to qualify for a loan.

A dedicated business account keeps your records clean, makes tax prep easier, and helps protect your personal savings. Deposit your business income there, and pay business expenses from it.

Expect the best, but be prepared for the worst

This tried-and-true adage is just another way of saying “it pays to plan” — including planning for when things don’t go to plan. At a minimum, that means creating a budget, forecasting future expenses, and keeping a reserve of liquid cash equal to three to six months of operating expenses. These three things alone will help shield you from some of the biggest shockwaves that send small businesses under.

Set goals for your business

You might be surprised by the number of SMBs who don’t have a vision beyond opening a storefront (digital or good old-fashioned brick-and-mortar) or getting a product to market. Without a clear plan for growth in place, it becomes much trickier to make savvy business decisions and seize opportunity when it comes along. Don’t become one of these victims of short-term vision!

Also, when setting your goals, remember that the best goals are SMART. Here’s what each part means:

• Specific — clear and well defined
• Measurable — tied to a number you can track
• Achievable — realistic for your business
• Relevant — connected to your mission
• Time-bound — set against a deadline

Once your goals are SMART, ground them in detail, like:

• Setting monthly revenue targets
• Pinpointing areas for growth
• Harnessing social media to reach new markets
• Leveraging tech to cut costs and streamline workflow

While you’re at it, don’t forget that money is just a means to an end. Your goals should not just increase your profitability but also tie into the overall mission for your business. What kind of an impact are you trying to make in the world? When you have a clear idea of what you’re trying to achieve, you’re in a much better position to make the decisions that will get you there.

Simplify your billing strategy

Billing can quickly snowball into a full-time job on its own. A typical week can include:

• Sending bills to clients
• Processing payments as they arrive
• Following up on overdue invoices
• Tracking what has been paid

All of this while keeping clients happy and your cash flow healthy. It’s exhausting.

The best way to cut through all of this? Simplify your billing and make it as easy as possible for your clients to pay on time. Melio lets you send invoices with just a few clicks, along with automated reminders so that everyone is crystal clear on how and when to pay their amounts owing.

Do a yearly financial health check

It’s true what they say: the days are long, but the years are short. And once your business has pushed past those early, uncertain days and achieved a steady amount of success, you’ll be amazed at how quickly the time can pass — and how quickly you can shift into financial auto-pilot.

A yearly financial health check keeps your finances responsive to change. Once a year, review your revenue, your expenses, and your investments. These checks almost always yield useful insights that can help you reduce expenses (like getting rid of outdated software subscriptions you no longer use) and drive new growth (like discovering a new market to tap into).

Melio makes life (and finances) easier for SMBs

While financial stuff may never be your cup of tea, there are ways to make it less stressful and more intuitive, so you can focus on the parts of being an SMB that do inspire and motivate you.

Melio is on a mission to make life easier for SMBs, with simplified B2B payment options that help you manage cash flow, send and track invoices, and more. To find out more about Melio and how this easy and intuitive platform can help you manage your business, sign up today.

Small business financial management FAQs