Finance is incredibly important to all businesses, but for smaller enterprises it can make a considerable difference. Being able to effectively manage your accounts means you can have the funds needed to expand your business or invest in new products, giving you ultimate flexibility with your strategy.
However, it can be difficult to implement good finance habits, especially as most small businesses aren't specialists in this area. This means that the road to good finance can be one of trial and error, rather than an exact science.
Your business credit is one of the most important finance factors, and something you should prioritize if you don't know where to start. There are a lot of advantages to effectively managing this area of your company, as it gives you much more control when it comes to making business decisions or adapting your model.
Taking responsibility for your credit promotes better cash flow, which is one of the biggest obstacles for small firms trying to get themselves off the ground. Being in a comfortable position with your business credit means you have more control over your financing, and can agree more advantageous terms with your lender. This means lower interest rates, as well as being able to choose from a wider range of organizations who will accept your application.
These benefits also extend to supplies, as better credit enables you to secure more competitive arrangements, allowing you to have an improved cash flow for other parts of the business.
Good management of your company credit allows you to be a more experienced judge when it comes to making decisions about your financial transactions. This can be deciding which customers are trustworthy or identifying any signs of fraudulent activity on your account. Being more knowledgeable and understanding of your finances will make your company run far more effectively in a variety of ways.
So how can you manage your business credit?
Make sure expenses are in your business' name
For many small businesses, they simply use their personal accounts for their company supplies. However, to properly assess your credit, it's much easier to have everything that is used for your firm under a business account. This means transferring your phone line, internet connection and anything else you have specifically for your business to a company file.
This will help you build up a credit history under your business, rather than as a personal user.
Find out what your credit is
The first step to managing your business credit effectively is to find out what it is. In the US, this means determining whether or not you have a business credit file. This can be done through the D&B website or you can directly call their customer service department.
Once you have this information and can see your file, you'll need to go through it and make sure you understand it all. You can edit certain details to make sure the record is as accurate to your business as possible, which also gives vendors and suppliers reliable information to work with.
If you need to create one, small businesses need to apply for a DUNS number, which acts as a unique identification for your company.
Pay your bills
The old adage that you should treat others as you want to be treated definitely applies for paying your bills. If you ensure all of your business expenses are paid on time it will help build a good credit rating for your company, as well as standing you in good stead with your suppliers and vendors.
Having a positive payment history and maintaining it over a decent period is a great step towards improving your commercial credit score.
Understand the other factors
As well as your payments to other suppliers and vendors, there are a wide variety of other factors that affect your credit rating. Some of these you may not be able to control but it's good to know how a certain business decision, such as hiring a new employee, may impact your business credit rating. Here are just a few of the things that can affect your rating:
- Number of employees
- Industry changes
- Balance between debt and equity
Maintain good habits
Once you have got your head around what affects your business credit, you need to continue to manage it throughout your time in the company, or until you pass this responsibility onto someone else. You may want to set aside some time each week or month to look through your accounts and your records to make sure everything is as accurate as possible.
This involves regularly checking and updating your D&B file and looking at the performance of the suppliers and vendors you use. Being keyed into these details will help you predict where your credit rating may be positively or negatively affected before it really has an impact on your company. Knowing more about the credit performance of those you do business with will help you make more informed decisions about who you want to work with and on what terms.
Even small details, like where your offices are, can matter when it comes to your business credit so make sure any change is accounted for in your file.
Managing your business credit
These simple steps should help your business become more financially fit but it's important that you don't neglect your personal accounts. Not only will being more conscious of your spending outside your company help you to get in the right mindset for your business, but the state of your personal finances can also have a considerable impact on your credit rating.
This means that maintaining good spending habits in your personal life puts you and your small business in a much better position.
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