Starting a business is a unique adventure. It provides individuals with the chance to run a business the way they want, offering a service or product they have designed and in a manner that they believe consumers will love. Those with a business idea and the funds can build and run a company to their standards.
Turning this dream into a reality is not easy. An estimated over 95,000 companies are founded in Canada every year. Within that figure, a reported 20% will fail within its first year, whilst approximately 60% will likely go under in their first three years of business.
The reason these small businesses go under in the early years after being founded will vary between companies. The most common reasons include no market for their product or service, being outcompeted, the wrong team supporting the business and running out of cash to continue.
To help ensure small businesses operate to their fullest potential, the state of the company’s finances can influence that decision. The importance of finances in small businesses is essential to the company’s success, and here is why.
Importance Of Finance In Small Business
Finances within business play a crucial part. It helps to determine how a company grows. Enables them to reach their target, improve their software, install new systems, and hire new and talented employees to join the team. Having the funds available is one way to enable businesses to reach these targets.
However, prioritizing finances and managing them correctly will help business leaders to ensure that they are spending and investing their money in the best way possible. One that will be beneficial for them and their growing small business.
There are many ways in which finances are essential in business. These are just some of how and why finance should be prioritized in a company, especially for small businesses.
Ensure Taxes Are Correctly Paid
When the tax season approaches, many will begin the tiresome process of getting their finances in order. It is a time-consuming process that can put many small business owners under tremendous amounts of pressure. The fear of potentially making a mistake or missing the deadline can be stressful for numerous small business owners.
Preparing for the tax season early will help to ease the pressure managers experience when filing their taxes for the upcoming season. Small business leaders can use online tools such as the 2021 Quebec tax calculator from Wealthsimple to discover how much they should be paying. Utilizing these tools helps ensure that managers are not overpaying or underpaying on their taxes.
As tax season is on the horizon, sorting company finances and paying taxes on time and correctly can be hugely beneficial for business.
Helps Avoid Financial Risks
Running out of funds is one of the main reasons why many small businesses fail. Most small businesses will likely run into at least one financial challenge during their years in operation. The reasons as to why they find themselves running low on funds vary between small businesses. For some, it is because they have not used a budget. If small business leaders hope that at the end of the month, the company has enough to cover bills, they will likely find themselves in an overwhelming amount of debt and financial responsibilities.
Finding themselves in this position could shut the business down and cut their losses. This outcome can be avoided. Small business leaders should develop a budget and ensure that they follow it. Having a budget in place can help them plan for the future. It can also look into what the company spends its money on and highlight areas of unnecessary spending in the business.
Measure The Progress
Small business leaders will most often work long hour days during the early stages of the business. During this time, they will likely encounter various challenges that they have to overcome to help the company progress. For many small business leaders, these moments can be crucial in determining the potential success of their company.
Without having a financial plan in place or not prioritizing finances, small business leaders may struggle with reflecting on the financial success and accomplishments the company has achieved to date. Seeing the company’s results, especially when they show tremendous growth, can motivate small business leaders. It can provide them with the encouragement they need to help them continue moving forward and overcoming any obstacles. Having the data available to see how the business has progressed over the months and years can help small business owners plan for the future.
An additional benefit is that showing the progress of the company to date, in particular how the business has grown, can be helpful when meeting with investors. Small business leaders can use the information of the financial growth the firm has had to show investors why their company could be a worthwhile investment to make.
How To Improve Finances
The advantages of prioritizing finances for small business leaders can be tremendous. It can help to improve the efficiency of how a business runs, allowing for more informed decisions to be made using the information and data available. These changes and updates could help reduce the company’s chances of being part of the statistic of the small businesses that fail within the first few years of operation.
For small business leaders looking to prioritize and improve their company’s financial situation, here are a few ways to help.
Engage Regularly With Finances
Increasing the time spent focusing on the company’s finances can help small business leaders better understand their financial situation. It means that they can make more informed decisions about the business, as they know where their company is financially.
If small business leaders engage with the company’s finances every quarter, they will likely miss opportunities to identify areas of weakness or potential problems likely to occur. Regular checks can help spot these areas before they become costly.
By regularly engaging with finances, small business leaders will also not have to spend considerable time updating and making amendments. The regular checks allow them to remain on top of any updates and modifications that need to be made.
Strategic Growth Plan In Place
Small businesses will grow at their own pace. The location of their company can determine the speed at which it grows and the products and services that they offer. Alternatively, some small businesses will have perfectly timed their launch due to rising demand for what they sell.
As such, there is not a one size fits all solution to help small businesses grow. Prioritizing their spending by creating a strategic plan is a step that any small business can take to help them progress.
Some small business leaders may decide to hold off on certain investments when looking at ways to grow. It could be investing in equipment and software to offer a particular service to customers. However, after building a growth plan, they may choose to invest their finances in marketing and increasing brand awareness first.
It will help them improve demand for a service, which they can later invest in the equipment and software needed. Taking this approach allows small business leaders to make better financial decisions.
Remove Unnecessary Spends
Spending the time to look through all business expenses and monthly outgoings can provide small business leaders with an insight into how the company spends its funds. It could show areas that are no longer being used or are underperforming. These areas could be a financial burden on the business. Identifying these areas can allow small business leaders to make the necessary changes.
Implementing these changes and removing unnecessary spending can provide small business leaders with a more accurate overview of how much the business spends monthly. With this information and the additional funds, small business leaders can invest in areas that could benefit from extra funding.
Firm Financial Foundation
Prioritizing the company’s financial situation should be a top priority for small business owners. Their financial situation will help determine how well the company performs and how long it can continue operating. Without solid financial plans in place, small business leaders will risk their company failing within its early year of being in business.
The sooner small business leaders prioritize their financial situation, the stronger their chances are of succeeding. Small business leaders should consider utilizing the support available to help their start-up in its first year.
It can be time-consuming to prioritize the finances of a small business. For small business leaders, time is highly precious. They want to utilize their time effectively, ensuring that they can divide it equally amongst all business areas. Whilst this approach can enable them to have a clearer understanding of what is happening in the business, it can risk crucial aspects, such as finances, hurting due to the limited attention.
Focusing on the company’s finances and building a firm financial foundation will take time. The time spent will help increase a small business’s chances of success. A goal that many small business leaders want to achieve.