Five Financial Spring Cleaning Tips for Small Businesses
By: Cary Yates, Wells Fargo market growth & development manager
It’s spring cleaning season and it’s not just time to clean out your closets or mop the floors. It’s the right time of year for small business owners to get organized. From de-cluttering business expenses, to cleaning up plans, every business owner can benefit from a spring cleaning. Below are five tips that we’ve observed from small businesses that excel at spring cleaning and can help you stay on track this season:
- De-clutter your Business Expenses: As a small business owner, you’re likely responsible for filing your taxes on a quarterly basis. With the April 15 deadline in the rearview mirror, you’ve probably had a chance to review your business expenses. Now it’s time to think about next quarter and changes you can make today to better prepare. If you don’t already do this, keep your business and personal expenses separate. Business checking and credit accounts that are separate from personal accounts can help you maintain accurate and complete records of all business-related income and expenses. For the next tax period, you’ll have separate statements and records to establish business income and expenses – without having to take the time to break them out from co-mingled personal financial business.
It’s also a good time to find ways to reduce costs and cut unnecessary expenses. An easy way to audit your expenses is to print out a list of all expenditures from your accounting or bookkeeping system, and determine whether or not they were necessary to keep your business running. It’s important to avoid falling into a routine of devoting resources toward particular business expenses without re-evaluating if those expenses are still adding value. Your business’ needs are constantly changing so make sure your expenses are aligned with your goals.
- Dust off your Business Plan: Every small business should have a formal business plan to help with business decisions and strategic planning. If you have one already, now is the time to do a quick review and consider updates to reflect your current business needs and goals. If you don’t have one, set aside time to draft this important document.
From start-up to succession planning, a business plan serves as a guide through the entire lifecycle of a business. An effective plan can help business owners prioritize how to spend their time and money, and set measureable goals. It can also help identify current or future obstacles so you can better anticipate and avoid potential risks. A business plan may also help you obtain business financing. For example, for an SBA loan and some larger business loans and lines of credit, lenders may require a formal business plan before extending credit.
- Take a Fresh Look at Payments: Now is a great time for business owners to evaluate all of the payment options offered to customers and determine if these need to be updated, including transitioning to chip card/EMV acceptance for credit card payments.
- Spruce up your Transition Plan: As a small business owner, you’re probably not thinking about selling your business or retiring, but it’s never too early to start planning for the future. There are many decisions to think about – whether you want to sell your business, pass it to a family member, cash out or wind down entirely – and this can sometimes be a daunting task. For this reason, it’s helpful to start the process of business exit planning several years before retirement and use the following steps for guidance:
- Identify your business exit planning goals and objectives
- Determine what the company is worth
- Identify transition options, and funding or financing for the transition
- Develop an implementation strategy and timeline
Whichever path you choose, it’s a good idea to take a look at your transition plan while you’re refreshing your business plan.
- Reduce your Cash Flow Burden: To run a successful small business, it’s essential that you maintain healthy cash flow. A best practice is to track your cash flow on a monthly basis. This can help you improve cash flow projections and better plan for recurring expenses and business expansions.
Nearly every small business will face a time when it needs more cash than it has on hand. During spring cleaning, you may want to consider if a business line of credit would help bridge any gaps your business encounters in cash flow. For instance, when taxes are due, you may want to use a line of credit to help keep your cash flow constant and cover ongoing expenses, while paying down your tax debts. Consider making time to meet with your banker for a spring financial review that includes an assessment of your credit needs.
Overall, it’s a good idea to add spring cleaning to your calendar. Refreshing business plans and reviewing your finances can not only enhance your bottom line, but can also have a great impact on your productivity and future success.
Cary Yates is Wells Fargo’s market growth & development manager. He is based in Houston. He can be reached at 713-319-1724.