Managing Small Business Finances: The Importance Of A Business Plan & Avoiding Pitfalls

 
John Kessler is the founder and owner of Infinity Sauces, a line of hot sauces that are made in Orange County, California. Recently Infinity Sauces was named the best hot sauce in Orange County by OC Weekly readers. By phone, Kessler discusses finances both for business owners that are just starting as well as those who are seeking to maintain their business.

 

 
What financial advice would you give to someone looking to start a business?

All of your finances should be tied to your business plan. Make sure you have a business plan that is realistic for you. If you have a $10,000 startup budget, it will last you a couple of months, and you’ll be done. If you’re able to predict and manage finances, it will be more stable. When it comes to managing cash flow, you want to keep your reserves for the worst outlook for the following month. Also, you don’t want to spend money on anything that’s unnecessary. I spent a lot of money on legal forms that I didn’t need for the first couple of years. Filing the paperwork to become an LLC is $800 per year, and I didn’t need that for the first couple of years. Also I didn’t need to register trademarks for everything regarding my business.

As a business owner today, you have more options for financing. For your startup capital, you’ll want to look into crowdsourcing. This gives you the benefit of raising startup money without getting a financial backer who will take some of the ownership of the business from you.

 

What are some tips for maintaining your financial statements?

Be as nimble as you can with your business model to react to your financial situation so you’re not blindsided by anything. As a small business, you need to look for a quick return on investment while planning for long-term success. One way to do this is to have multiple categories of accounts receivable. Part of that is to make sure you use all the digital options like PayPal to make your accessibility to cash faster. With PayPal, my customers will pay invoices and I’ll have the money within a week. If they pay by check, I won’t have access to that cash for 30 days. You need to be digitally savvy to recap your accounts receivable more quickly.

 

What are some financial pitfalls you think business owners should be warned about?

I wish I had written a better business plan from the start that was realistic for me and the growth of my business. As I mentioned all finances should be tied to the business plan. Another pitfall is getting people to pay invoices while trying to pay your own bills. At first, I didn’t pay bills fast enough. That creates a backlog that you have to overcome. Now I pay my bills within 24 hours. The interest that accrues is not worth the risk of creating that backlog of bills.

 

 

This article was written by Gary Schwind for CBS Small Business Pulse.
 

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