The beginning of a new year is as good a time as any to take a step back and figure out what you can do to get your small business’ financial house in order. Due to the uncertainties that came with 2020, this maxim holds even more truth for 2021.
As you begin to make financial resolutions for the new year, it’s important to strike a balance between short-term and long-term financial goals.
What is an example of a short-term financial goal?
Like the name suggests, a short-term financial goal is something you hope to achieve in the near future — say within six or 12 months tops.
For example, if you’re one of the 50 percent of businesses that only has a cash buffer that allows you to keep your doors open for 27 days, you may want to establish an immediate short-term goal of increasing your cash reserves.
That way, you’d be better positioned to deal with some of the unforeseen disruptions many small businesses saw in 2020.
How do you set long-term financial goals?
Long-term financial goals, on the other hand, are goals you hope to achieve at some point down the road—in five, 10, or 20 years, or even longer.
One of the most common long-term financial goals for small business owners is making sure you have enough money to retire comfortably. Unfortunately, 21 percent of Americans don’t put any of their income aside for retirement planning, and 64 percent lack the funds they need to live comfortably in their golden years.
As a small business owner, you have more retirement options than the average professional. To this end, you might want to look into establishing an SEP IRA or a solo 401(k) program in 2021 to meet your long-term financial goal of retiring comfortably.
The good news is that—by making financial resolutions and sticking to them—it’s possible to achieve both your short-term and long-term financial goals. It might take some time and some sacrifice. But with patience and determination, it’s possible to optimize your small business’ cash situation and end up in a much stronger financial position before you know it.
As you begin planning for 2021, one thing to keep in mind is that—while financial resolutions are great to make— they’re also okay to break; lots of people tend to break their resolutions anyway. Still, simply spending the time coming up with resolutions is a worthwhile exercise that can start getting you thinking in the right direction.
With all this in mind, let’s take a look at four financial resolutions you should consider for your small business as we move into the new year.
1. Review and optimize your monthly budget
Believe it or not, 61 percent of small businesses don’t have any sort of documented budget.
When you’re a one-person team and have good control over your finances, that might not matter much. But once your small business starts to scale, you should seriously consider setting a budget and tracking cash outflows each month. Not only will this give you more visibility into where your finances stand at any given time, it will also improve your cash flow and can help you identify areas where you could potentially find some savings.
You can’t improve your business’ spending habits if you don’t know what they are to begin with. By reviewing your spending each month, you can identify areas for optimization, get more control over your finances in a relatively short period of time, and measure your progress.
2. Pay down high-interest credit card debt
While there’s such a thing as “good debt,” high-interest business credit card debt definitely isn’t it.
Yet according to a recent study, nearly one out of every four small businesses carry a balance on their credit card each month. What’s more, 50 percent say they carry a balance every now and again. If you’re contributing to either of those figures, you should do whatever it takes to settle your balance in full as fast as you can. Otherwise, you’re just burning money.
Not only are credit card interest rates prohibitively high, you end up paying interest on interest when you only make minimum payments each month. Depending on how high your balance is, it can lead to a debt spiral that’s incredibly hard to get out of in the best case scenario.
Once you’ve paid off your business credit card debt, get into the habit of paying your balance off in full each month. Use credit cards for convenience and to take advantage of rewards points—not to dig yourself into a massive hole of debt.
3. Secure flexible financing
If you’re a small business owner whose goal is ending up next year in a much healthier financial position, you should think about securing a flexible source of financing that gives you fast access to the cash you need to grow. It beats the alternative of racking up high-interest debt or running into cash flow problems and not knowing what to do next.
For example, you can apply for a line of credit online and borrow against it as needed, only paying interest on the money you draw. Remember, getting a business line of credit doesn’t always require a long application process. Learn how to apply for a Fundbox line of credit in two easy steps and, if approved, secure funding rapidly.
4. Invest in your future
Here’s a resolution that combines short-term and long-term financial goals: investing more money in the future of your company.
A short-term goal could be investing in new tools and technologies that enable you to increase productivity. For example, if you’re still using spreadsheets or worse to manage your accounting, you might want to check out accounting solutions like Quickbooks, FreshBooks, or Xero. Not only will this give you more control over your finances, you’ll also be able to reclaim time and reinvest it in other areas of operations.
Over time, you may find that a simple investment like this gives you enough time to develop new products, target new customers, or create more persuasive marketing campaigns — all of which can help grow your bottom line.
What are your financial resolutions for 2021?
some financial resolutions and sticking to them, it’s that much easier for your small business to finish up next year in a more advantageous position than you began it.
The above list is by no means complete; there are hundreds upon hundreds of financial resolutions you can make for the upcoming year. Still, it should give you some ideas as a starting point.
Here’s to making smart financial resolutions that enable you to help your business achieve its goals next year and beyond.