As 2018 approaches, small business owners should be preparing their Financial New Year’s Resolutions. A resolution, of course, is a promise in which an individual vows to change behaviors and to improve on the shortcomings in the previous year. While most people think of resolutions in terms of self-improvement, setting goals for a company is important for any small business owner. Following them can and should lead to better cash flow and greater profitability.
With stock markets performing extremely well and unemployment still at low levels, the American economy is making a strong finish in 2017. The holiday season has been strong, and business optimism remains at high levels. Entrepreneurs are now assessing whether to take the risk of starting and expanding their companies in 2018.
Securing small business financing is often the biggest challenge. The preparation for a loan application comes in advance of actually sitting down and taking the time to complete the application. Many small firms that need money for working capital or for planning an expansion may not be able to apply right away. First, they must get their financial house in order. This is why small business New Year’s resolutions can be valuable.
1. Lose Weight
This resolution is at the top of the list for most people. However, for small business owners, we are not talking about dropping a few pounds. The plan for business should be to trim the waste-line, rather than the waistline. Even during prosperous times, reassessing expenses is usually a fruitful task. Every business owner wants his or her company to be as lean as possible.
Assess your scheduling practices and make sure you don’t have too many employees on duty during slow periods. This is especially important for organizations that have part-time workers. It is easier to cut back hourly workers than to try to reduce a salaried employee who is not fully utilized.
Use up slow moving inventory, even if that means offering it at a discounted rate. If you are discontinuing something that simply is not selling briskly enough, you can still make money on the products. Further, you may be able to clear out shelf space for more profitable items instead.
Decrease waste. If you own a restaurant and throw out a lot of food at the end of the day, determine a volume at which excess can be reduced without compromising the menu of the eatery. Even if the cost reduction only amounts to ten or twelve dollars each day, at the end of the week, that figure starts approaching $100. With four weeks in a month, the savings could be $400 or more. The money might be better applied elsewhere, either to pay bills (for companies that may be struggling) or simply increase monthly profits.
2. Increase Your Personal Credit Scores
Personal credit scores play an important role for entrepreneurs seeking capital. If you are looking to secure financing in 2018, understand that loan approvals are based on a combination of both personal and business credit scores. If you are burdened with credit card debt, begin to pay it down, if possible, before asking for a loan. After all, credit cards basically provide short-term loans – you buy something now and pay back later (with interest, if it takes longer than one month). Paying off current debts will increase your credit score and ultimately help improve your chances of securing small business funding.
3. Improve Your Financial Record-Keeping
If you have any ambitions on obtaining financing to expand your business in 2018, maintaining accurate financial records of what happened in 2017 is vital. Lenders will examine sales revenues, P&L documents, tax statements, and other financial records to determine the viability of your company. Respond quickly to requests for financial information. Taking too much time to provide the documents could raise a red flag for potential lenders.
Your track record of operations and financial performance are important indicators of your company’s prospects for the coming year. Knowing where you are now will help you determine how far you need to go to get where you want to be. Some business owners are proficient enough to do their own taxes with software products, such as QuickBooks, TurboTax, and TaxAct. If you are not organized or skilled enough to file your own returns, hire an accountant who specializes in working with small businesses. There are plenty of good ones out there.
4. Pay Taxes Promptly
Start working on filing for your 2017 returns now. If you file early, and the government owes you money, it will come back to you quicker and thus help your cash flow. If you are planning to secure capital for new projects, you might not have to borrow as much money if you know that some of it will be returned by Uncle Sam. Don’t wait until April to start working on your taxes if you are able to do so in January or February. Getting slammed with a surprisingly big bill on April 15 can disrupt cash flow dramatically. Be sure that you are paying your estimated quarterly taxes on time throughout the year to avoid penalties and reduce the potential negative impact if you owe the IRS or your state government.
5. Cut your cost of capital
If you are carrying a lot of credit card debt, which can be 19% interest rates or higher, your cost of capital is too high. Look into refinancing other high cost loans. Consider applying for a small business line of credit, often come at attractive interest rates. Refinancing can reduce your debt payments and improve your cash flow.
New Year’s resolutions often seem cliché. Losing weight, giving up smoking, looking for a new job, and vowing to reconnect with old friends seem to rank near the top every single year for individuals. While the small business financial resolutions suggested above may seem “evergreen,” they offer good practice for any company looking to improve operations and cash flow as 2018 gets underway.