How to Reduce Financial Risks in an SMB

How to Reduce Financial Risks in an SMB


Running a small or mid-sized business can be demanding from a financial point of view.

SMB owners need to know how to generate income and make the necessary investments, while keeping their expenditure under control.

If you’ve never had a leading or managing role in a business, you need to learn a few things before you take the reins of your venture.

After reading this article, you’ll know more about financial planning, saving, and wise spending.

1)  Make a financial plan

Before you make and spend your first cent, you need to make a financial plan for your company.

This document should contain your business goals and objectives, including the average planned income on a monthly basis.

You need to include the overhead expenses that you’ll need to pay every month: rent (if any), utility bills, insurance, and other similar costs.

Add your social security and health insurance contributions to this plan, as well. If you have any employees on your payroll, make sure to also add their contributions to the plan.

During the first month of your business operations, note down every payment you receive and make. That way, you’ll form a cash flow statement, which will give you an accurate insight into the assets you’ll be dealing with. In turn, it will enable you to plan your finances in greater detail.

2)  Form an emergency fund

As a business owner, you need to keep your business assets liquid. This means that your venture should never run out of assets.

In the beginning, you’ll probably have some good months and some bad months in terms of revenues.

The gold rule is to curb your expenditure while you’re doing well. During high tide periods, always put a percentage of your income aside.

These assets can serve as your emergency fund, i.e. the money that you can count on in case of crisis.

In addition to the emergency fund, it would be wise to start a separate savings fund. This one should be used for long-term savings which you don’t spend even in case of emergency. This additional fund will be the second layer of financial security for your business, used for your business growth.

3)  Separate your business and private accounts

One of the most common mistakes then SMB owners do is keep their business and private assets together. This is the most usual thing for sole proprietors. Since they’re not obliged to have a separate business account, some of them use the same account for their business and private assets.

This is something that every business owner should avoid. If you keep your finances apart, you’ll be able to track them more accurately; plus, you’ll avoid the risk of mixing these two types of assets.

Moreover, you should never use your business assets to cover your private matters. Even if you’re planning to return that money to your business account, it’s a dangerous thing to do.

On the one hand, it could become your habit. On the other hand, in some countries, you’re not even allowed to spend your business money on private expenses.

So, if you want to grow a healthy and prosperous business, bear in mind that company assets are to be used strictly for company purposes.

4) Avoid risky investments

New SMB owners can easily get carried away by the fact that they’re now entrepreneurs. This is especially dangerous if your business becomes successful in its very beginning.

In line with that, some rookie entrepreneurs decide to invest their money as soon as they earn a higher amount of it. Buying a fancy company car, renting a classy office, and getting too expensive business equipment are only some of the moves that are considered hazardous for a new business owner.

Other new entrepreneurs go even further and start investing in stocks, insurance funds, and other similar financing options.

Since you don’t have enough business experience, avoid such risky moves while you’re trying to put your business on its feet. Once you’ve established a stable venture with a positive balance sheet, start learning about advanced investing.

As for the business car, the office, and the equipment, get those things only if your business really needs them. Also, bear in mind that they don’t need to be brand new or pricy, but they just need to serve their purposes.

5)  Invest wisely in marketing

It’s almost impossible to properly develop your business today without some sort of marketing expenditure.

Still, with so many free and affordable options at your disposal, you can achieve great marketing results without spending a fortune.

For starters, promote your business via social media. You can launch a business page on several social networks for free. Share your blog posts, special promotions, and product pages that way. Additionally, you can pay some promotional campaigns and social media ads. They don’t cost a lot and they can increase your online visibility.

Moreover, you’ll need to launch a proper business website. Still, bear in mind that it doesn’t have to be either expensive or complex to be good. As explained by the design experts behind a web design company in Houston, a business website needs to provide its target audience with relevant information via texts and images. In that light, include the basic information about your business and the services you provide. Also, launch a blog section, where you’ll be adding various posts relevant to your business and your niche.

Finally, connect with other companies and business people on the Internet. Thanks to LinkedIn, online business platforms, and special groups of professionals on social media, you can boost your networking without spending a dime.

Keeping your finances under control is one of the key prerequisites for proper business growth. So, start with a financial plan and stick to it. Form an emergency fund from day one. Also, make sure to keep your business and private finances apart and don’t rush into any hazy investments. Finally, do your homework and go for affordable and free marketing options. All these steps will help you develop your venture while reducing business costs.

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