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4 Methods to Fail-Safe Your Business Finances

Owning a business is both an exciting and terrifying proposition. On the one hand, you are your boss and get to call the shots. On the other hand, you are also responsible for everything that goes wrong and has to bear the financial brunt of any poor decisions.

No doubt owning a business is a risky proposition, but there are ways to minimize those risks. This blog post breaks down 4 critical ways to help build a fail-safe for your business.

1. Plan for Worst-Case Scenarios

No one likes to think about worst-case scenarios, but as a business owner, it’s important to be prepared for them. After all, cash flow shortages, cost overruns, and dips in demand can all lead to serious problems down the road. The best way to prepare for these eventualities is to create detailed cash flow projections and cost of goods estimates. This will give you a clear picture of your financial situation and help you identify potential problem areas.

In addition, it’s also a good idea to keep an eye on seasonal trends and business growth targets. By monitoring key performance indicators, you’ll be able to spot potential problems early on and take corrective action before they cause serious damage. Taking these precautions can help ensure that your business is prepared for whatever the future may hold.

2. Build an Emergency Fund

A cash reserve is important for everyone, but it’s especially important for freelancers and small business owners. A cash reserve is like a safety net or a rainy day fund – it’s there to help you cover unexpected expenses or lean times.

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Building a cash reserve is daunting, but it’s fairly simple. First, start by setting aside a fixed amount of money each month. This can be as little as $50 or $100 – the important thing is to be consistent. Once you have a few months’ worth of savings, you can use that money to cover unexpected costs. Over time, your cash reserve will grow, giving you peace of mind in knowing that you’re prepared for anything. We recommend having a minimum of 6-months of operations expenses as a cash reserve to ensure that you’re best prepared for future struggles.

3. Park Profits in Safe Investments

Parking a portion of your business profits is a great way to ensure that you have a safety net in lean times. When profits are high, it can be tempting to reinvest all of the money back into the business, but this is a risky move.

Instead, try to set aside a fixed percentage of your profits each month and invest that money in safe, long-term investments. This could include a savings account, a certificate of deposit, or even government bonds. Investing your money wisely helps ensure you have a cushion to fall back on in an emergency.

ETFs are another great option for safe investments. ETFs are baskets of different stocks, bonds, and other securities. They’re designed to track an index, meaning they automatically adjust to changes in the market. That makes them a great choice for investors who want to stay diversified and protect their portfolios from market swings.

If this sounds interesting to you, we recommend investing in industries such as mining or renewable energies, as these have strong and consistent returns. For example, you can invest in basic resources such as copper or iron ore, which have consistent supply and demand. In fact, The Assay states that the copper price forecast is looking steady over the next 10 years, with demand remaining steady due to the explosion of the popularity of Electric Vehicles.

Additionally, parking profits in safe investments can help you reduce your tax liability. Many business owners are unaware that they can deduct the interest earned on their investments from their taxes.

4. Invest in Bookkeeping Software

Many business owners find that bookkeeping takes up a large chunk of their time and is time-consuming. Accordingly, staying on top of your finances can also be difficult if you don’t have a system in place. This is where the business automation software comes in.

By investing in software that will help automate your bookkeeping, you can free up time to focus on other areas of your business. Several different software options are available, so it’s important to do your research to find the one that best suits your needs.

Bookkeeping software is a great way to keep track of your income and expenditure and can also help you budget for future business expenses. Bookkeeping software can also be used to generate invoices and track payments. By automating your bookkeeping, you can save time and money and free up valuable resources to reinvest in your business.

You can also ensure that by staying on top of your finances, you will be less likely to fall behind and incur late fees or make rushed mistakes during tax season. Taking these precautions can help ensure that your business is prepared for whatever the future may hold.

To help get you started, check out our guide on smart software solutions for your business.

So there you have it! These are just a few of the ways that you can prepare your business for the future. Taking these steps can help ensure that your business is ready for anything that comes its way, rain, hail, or shine!

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