The ultimate guide to small business finance and payments

Chapter 01: Introduction

Unless you’re a business owner in the financial sector—like a financial analyst or a certified public accountant—the thought of crunching numbers, keeping a steady stream of money into your business year-round, and determining the best payment methods for your business can be overwhelming. Some might even find themselves paralyzed by the enormity of such a task. If you fall under the category of non-financial-based business ownership, we’re here for you.

Feeling insecure about maintaining a certain level of debt for your credit score? Looking for advice on which financial actions can be automated and which need your personal touch? Keep reading. Everything you’ve ever wanted to know about managing small business finances is right here in this guide.

In this guide, you’ll learn how to:

  • Find funding resources
  • Create an effective pricing strategy
  • Choose the payment methods that are right for your business and your clients
  • Get paid faster
  • And much more ...

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Chapter 02: How to find funding resources

Woman at a desk reviewing her financial statement

Whether you’re just starting out, or need to bridge a gap in income during an off-season or slow period, you’ll face the need for a small business loan. Many options are available, and beginning your search can feel overwhelming. Luckily, plenty of resources are available to help guide you through the process so you can put your best foot forward when applying for a business loan.

Here are 5 key resources to help you:

1. An online loan calculator

The first thing you’ll want to determine is the type of loan that’s right for your needs, and how much money you’ll need to borrow to get the job done. Different types of loans have different repayment structures and interest rates so a loan calculator that’s specific to the type of financing you’re searching for is crucial.

2. Guidance from an accountant or mentor

If you’re at a stage where your business is looking for financing, you should already have a business plan in place that is guiding your financial decisions. This is where a trustworthy accountant or business mentor comes in. Ask your accountant or mentor to review your business plan (or help you create one if you haven’t done so yet) and provide honest, comprehensive feedback to make sure you have the strongest possible framework to guide your business decisions.

3. Your financial statements

Lenders will want to see financial statements before establishing a relationship with you as a borrower. The documents most frequently requested include income statements, cash flow statements, and balance sheets. For borrowers seeking their first loan for a new business, the lender will likely ask for your personal financial statements and run a credit check on you as an individual, to ensure you’ve been a trustworthy borrower in your life prior to becoming an entrepreneur.

4. Your business tax returns

Most lenders will want to see your annual business tax returns. You might consider this personal or sensitive information, and it is, but lenders have a good reason for wanting to take a peek at these documents.

The first thing lenders will look for is your annual revenue. They want to make sure you are making enough to pay for the loan. They will also take note of any losses. Obviously, losses are red flags for lenders that signify you might not bring in enough income to qualify for the loan you want. You might still be able to secure a loan, but chances are your interest rate will be higher, and the total amount you are approved to borrow could be less than you need.

5. A business debt schedule (if you have one)

If you’ve already borrowed funds for your business, lenders will want to know about it. A business debt schedule allows you to map out your outstanding loan and credit amounts and outline your monthly payments with interest and payment dates. Even if lenders don’t ask for this document, you can use it internally to make sure you never miss a payment, to keep a finger on the pulse of your business’s financial health, and to gauge whether your business is in a position to take on additional debt.

Whether you’ve been running your own business for years or are looking to acquire business financing for the first time, doing the necessary research, planning, and organization upfront will ensure the application process goes smoothly.

Chapter 03: What you need to know before you apply for a small business loan

Small business loan application

In addition to knowing which resources are available to you when you’re considering applying for a business loan, it’s important to understand the framework many lenders may use to evaluate you and your business. They’re called the 5 C’s of credit.

1. Character

Lending institutions will pull your credit report and credit score to assess your trustworthiness and reputation. Before lenders will give you money, they’ll check your history of repaying other debts and check if you’ve declared bankruptcy in the past or had a lien against you.

2. Capacity

Capacity is measured by comparing your business’ recurring debts to its income. Lenders will determine your debt to income ratio (DTI) to gauge the likelihood of your ability to pay back the loan. Businesses with low DTI are more likely to be able to pay their loan payments, which makes them a more desirable candidate.

3. Capital

Lenders will also look at the amount of capital a borrower is willing to put in when asking for a loan. The larger the contribution upfront from you, the more you’re invested as a borrower, making the lender feel secure in the fact that you’ll be less likely to default on the loan.

4. Collateral

If you’re not able to obtain a loan with a large amount of capital, lenders may recommend using owned assets as security against a loan. Collateral serves as a backup if you’re unable to pay your loan for whatever reason. This is most common with equipment financing, car loans, or mortgages, where the item you’re purchasing with the financing becomes the collateral for the loan.

5. Conditions

Conditions of the loan—like interest rate, amount of principal, and how the lender intends to use the money—are all assessed by the lender when determining whether or not to work with a borrower. While those things are within your control, lenders will also look at external conditions such as macroeconomic issues and what’s going on in your specific industry that could affect your income.

You can get more information on the 5 C’s in this beginner’s guide.

Chapter 04: Striking the right balance between debt and income

Woman working at desk concerned about debt

A mistake many new business owners make is assuming that carrying a debt balance is harmful to their bottom line. While throwing down your credit card for every purchase and not making more than the minimum monthly payment isn’t smart, debt can actually work in your favor.

Did you know small business owners who carry debt have higher credit scores and personal income than consumers who do not own businesses? It’s true!

Here are some of the ways debt can actually benefit your business.

It can improve cash flow

A business loan allows you to leverage your profits and balance uneven cash flows. Taking a loan to purchase a piece of equipment or hire an employee that will generate income beyond that debt is simply a smart move. A loan can also keep the cash coming in the door during slower months, and the debt can be paid off when the business sales pick up during busier months.

It can help you expand your business

Whether you need a bigger space, second location, more staff, or additional equipment, taking on debt can make more sense than saving up money until you can afford to grow debt-free. When business growth opportunities are supported by realistic expectations and a business plan, debt can help you expand at the right time to take advantage of a business opportunity that will pass you by if you don’t act quickly.

Debt vs. equity

Some small business owners are uncomfortable with debt and prefer to give an investor equity in their business instead of taking out a loan. Equity can be a good choice if your business is a true startup with no revenue or profits since you have no risk and no loans to pay back.

However, for an established business, it may not be the best option because you’re selling off equity to investors who will profit from the hard work you’ve already put into your business. Also, you’ll lose full control of your business since the investors have a stake in the outcome. In this case, a loan is often a better choice.

Check out this video from Skillshare for a deeper dive on which option is best for your business:

Find out more about business debt and how you can benefit from it and manage it.

Chapter 05: How to create an effective pricing strategy

Woman with sticky notes planning

Have a pricing strategy in place will allow you to accurately evaluate your goods or services, confidently share your prices, and evolve your pricing as your business grows and changes. By considering several important points before setting a pricing strategy, you’ll be prepared to move forward and grow your business.

Here are the 7 things you need to consider when putting together an effective pricing strategy.

1. Know your worth

Do some research. Look at your competitors’ offerings and prices to get a feel for the market within your industry.

Sarah Hennigan, owner of Money Clarity, suggests considering everything that has gone into creating the product or service you offer, not just your hourly rate.

2. Address shortcomings

When assigning a price to your strengths, also be aware of your weaknesses. According to Dileep Rao on AmEx Open Forum, if you’re in an emerging industry, you have to be incredibly mindful of pricing and be ready to pivot quickly due to rapid, sudden changes. In order to carve out your more permanent niche in a market, focus on one specific thing and do it well, instead of trying to mimic what you have already seen done.

3. Stand your ground

While the trend for corporations is to undersell one another just to get the sale, small businesses hold the honorable distinction of providing a more personal experience, but that can sometimes come with a higher price tag. Avoid competing with corporate prices and believe in the value you provide for your price.

Erin Weber Vaughn, owner of Erin’s Lunchbox, reminds small business owners to, “…charge for the work you can't take while working for this client or if you are ‘selling’ a day off then really be aware of the true value of that time. If it's the ideal client whatever you charge is perfect, so make yourself happy.”

4. Offer multiple price points

If a prospective client wants to negotiate pricing or undervalue your service, don’t give in to it. Stand firm on your pricing, as it reflects your years of experience, and that has value.

However, as part of your pricing strategy, consider changing your pricing structure and offering a variety of packages, especially if you’re a service-based small business. If a prospective client wants a product or service that is out of their price range, have viable offers that can meet their needs but are less inclusive.

5. Offer tiered pricing

Consider offering this à la carte style pricing in your small business to truly meet the needs of your clients while maintaining agreeable pricing. For example, have you ever been to a local coffee shop, and noticed a chalkboard for pricing and offerings? The prices for beverages change with size, as well as with additions, like an extra espresso shot, added flavor or non-dairy milk. It is very apparent how much your beverage will cost, based on the number of items you add.

6. Never underestimate the need for quality

In a time when products aren’t meant to last a lifetime like they used to, people crave quality. For example, Weber Vaughn of Erin’s Lunchbox knows that pricing is tricky but clients are willing to pay for what they truly want. Her business is founded on providing her clients with the most "real" and high-quality foods to sustain their health and wellness.

7. Be smart and realistic

By considering the important factors that influence pricing, you'll have a strong understanding of the market value and your small business' value, which will allow you to create a solid pricing strategy. It will allow you to conduct business more confidently and effectively.

Want to get more in-depth information about developing a pricing strategy? Check out this article that will help you create a strategy like a boss.

Chapter 06: Which payment method is best for my business?

Wallet with cash and credit cards

Another important step in developing your pricing strategy is to determine whether you prefer cash, credit, or digital payments. While credit and digital payment are becoming the norm for most businesses, especially those who conduct their sales online, most small businesses are paid by a mixture of payment methods.

If you’re an established business who’s always been cash-only, it may be time to consider accepting cards. On the flip side, going totally cashless could be a great choice for your business.

Though both methods end in the same result (more money in the bank), each have clear pros and cons for each that are worth considering.

Pros of cash:

Instant access to funds

Accepting cash means that you have the money made from a purchase immediately. Card transactions often require a short period of waiting time between the client’s purchase and your access to the payment. With cash, you don’t have to deal with a third-party entity or wait for a transaction to clear.

No cost

With every credit card swipe comes a transaction fee. Depending on the card, these typically range from 0.5%to 5.0% on purchases. Fees can be tough to manage and reduce your profit margins.

The cons of accepting cash:

Security risk

Having immediate access to your capital is a double-edged sword. Holding on to a large amount of cash at your place of business may increase the chance of putting yourself at risk for theft.

Bookkeeping is complicated

Keeping track of only one payment method does make bookkeeping easy, but it makes your accounting complicated because it’s hard to keep track of all your expenses when you don’t have a paper trail to follow. Cash can easily get lost and it can crossover various types of finances.

The pros of accepting credit

It’s efficient

If you own a restaurant or any fast-service business, you know how stressful things can get during peak business hours. People want their product fast, and no one likes waiting in line for someone to count out pennies. Operating as a card-only venue cuts down on service time.

Accounting is easier

When you accept credit or debit card payments, you have an automatic record of all purchases which can eliminate the need for manual record keeping. Plus, without cash, there’s less risk of human error and no time wasted counting out cash at the end of the night.

The cons of accepting credit

It alienates some people

They say cash is king for a reason. Today, people expect to use cash basically anywhere and everywhere and may be caught off-guard if they find they can’t. Plus, by not accepting cash, you will alienate some “unbanked” clients or those without access to a bank account. Before you consider going cashless, take a hard look at your prime client base and whether or not they have access to a credit or debit cards.

Online security

Without cash, you eliminate the risk of on-site robberies and theft. But fraud and security breaches are a legitimate worry for business owners. Your and your client’s records will be online, and accessible in the event that security fails. Plus, there’s the risk of clients submitting fraudulent chargebacks, requiring you to spend time and energy fighting for your money.

Only you know what’s best for your business and your clients. What works for one business may not work well for your type of business. Take some time to evaluate the different payment methods available today and determine what’s best for your business.


Chapter 07: How to manage a budget and recover from negative cash flow

Spreadsheets and calculator

Now that you actually have money to work with, it’s absolutely crucial to create a budget. Without a budget, you risk gross miscalculations, overspending, and overall unpreparedness for the future. Basically, any business owner who operates without a budget is putting their business at risk for failure.

Numbers are stressful. Especially considering these numbers can signify the make or break a small business. But businesses that plan well tend to thrive.

These tips will help you with your financial planning journey.

Tip #1: Let your budget work for you:

The budget should be your friend. It’s an actionable tool and should work on your behalf to help you determine if you have sufficient funds to maintain and grow your business.

Tip #2: Don’t expect complete accuracy:

Your budget is an educated guess. Make assumptions based on current trends and past expenses and spending patterns.

Tip #3: Pay attention to what you’re spending:

Every now and then, review your budget and look for opportunities where you can reduce operating costs by working with new suppliers or services.

Tip #4: Build in wiggle room in your budget:

Set some extra money aside for necessary future expenses like expansions or new equipment.

Tip #5: View business budgeting as an ongoing project:

A monthly budget will both keep you from being surprised and help guide your thinking toward what you need to do to build your business long term. Annual budgets might work well for corporations, but a monthly budget is a more reasonable plan for small businesses.

Tip #6: Stay on your toes:

Take an agile approach to running your business. Be prepared to shift and adjust your business based on performance. If one of your products or services is outperforming, start your research early to find out where you should be focusing your efforts and learn about upcoming market trends.

Tip #7: Use the right budgeting tool:

Arm yourself with the right tools and managing your budget will become much easier. Here are a few financial planning tools you can use to plan and track your budget:

  • Microsoft Excel: Its innumerable tutorials and equations to track, organize, and calculate are invaluable to any business owner.
  • Intuit QuickBooks: It’s easy and all-encompassing, with an online version that you can access from any computer or phone.
  • PlanGuru: This business software lets users budget and forecast for up to 10 years with more than 20 standard forecasting methods.
  • inDinero: This software updates your books, files your taxes and manages payroll benefits to make your life easier.
  • Budget Maestro: A user-friendly—but very detailed—way to compare your actuals to your budget.

Another thing to keep in mind while you’re working on your budget is to plan for the future. John Rampton, an entrepreneur, online influencer, and founder of the online payments company, Due, explains that venture funding will ebb and flow. He recommends business owners always plan for future funding, especially during times of ebb.

Here are a few ways John Rampton recommends small businesses find funding:

But what do you do if those inevitable financial ebbs end up making a larger impact on your bottom line than you expected? The last thing most business owners want to do is give up on their business without giving it their all, especially after all the time and effort that goes into starting a small business.

How to recover from a negative cash flow

Step 1: Determine the cause of the negative cash flow

First things first. Figure out what caused the issue in the first place. By knowing the source of the problem, you can create targeted solutions. And, you can prevent issues in the future. Often, the cause of a negative cash flow lies in your operations when you do not make enough or spend too much.

Step 2: Change your payment terms if clients aren’t paying fast enough

Your payment terms influence cash flow. If you invoice clients and have a negative cash flow, it’s time to revisit the payment terms you have in place. Take a look at your billing procedures to see how long it usually takes clients to pay.

Step 3: Reduce operating costs wherever you can

Make a list of all your operating costs and weigh the risks and rewards of each expense and how eliminating or reducing each one will affect your business.

Step 4: Run a promotion to bring in new sales

To help get your business out of a slump in cash flow, increase it by holding a promotion. Advertise the sale to your leads and clients in an email and on your social channels.

Step 5: Meet with a lender or investor if cash flow is still low

Sometimes, an increase in sales alone cannot resolve a negative cash flow. You might need to pursue investments or financing. A great place to start is the Small Business Administration. SBA loan programs help small businesses get bank loans by guaranteeing a large part of the loan.

Many small business owners have gone through financial struggles and that’s OK. The important thing is to learn from them and move forward. To help you avoid financial struggles with your business, here are 5 of the most common financial mistakes small business owners make.

5 common financial mistakes

1. Making large and unnecessary purchases

Small business owners may be tempted to purchase the latest technology, a comfy office space, or hire only the most credentialed employees—all of which cost a lot of money. Resist the temptation to use funding from a business loan or financial backing to make personal or unnecessary business purchases. Instead, choose to only spend money on things that are absolutely critical for your business.

2. Neglecting business insurance

Having the right business insurance eliminates financial risk from unforeseen events. Unfortunately, many small business owners make the mistake of canceling their coverage before having a new policy in place, or not choosing the policies that best fit their business’ needs.

3. Mixing business and personal banking accounts

Failing to separate business and personal expenses could lead to business cash flow issues and monetary complications pertaining to balancing accounts, measuring profits, filing taxes and setting clear financial goals. Never use personal accounts or funds for business transactions, and vice versa.

4. Not having an emergency fund

Every business owner will encounter expenses they didn’t anticipate—regardless of how much you plan. Business owners should always save up for at least 3 months worth of expenses as an emergency fund.

5. Not planning for tax obligations

As a business, you will have different state and federal tax obligations businesses need to pay and vary depending on the size of the business, where it’s located, and the type of business. A good rule of thumb is to make estimated quarterly payments to the IRS to avoid a huge tax bill at the end of the fiscal year.

Chapter 08: How can I get paid faster?

Customer paying with mobile phone

After all the work that goes into delivering a quality product or service, getting paid should be quick and easy. As you know, that’s not always the case. However, you can take steps to make your payment process more efficient.

Unfortunately, there isn’t a one-size-fits-all approach to ensuring all your clients pay you on time, but you can encourage your clients to pay you faster.

Streamline invoicing

One of the many hats you probably wear, and most likely don’t care to wear, are the bookkeeper and accounts receivable hats. Here are a few things you can do to speed up invoicing, get paid faster, increase cash flow, and improve client satisfaction:

Switch from paper to electronic

Use invoice software, or small business software which includes invoicing functionality, instead of paper invoices, which take a lot of time to create and manage. Electronic invoices are more professional than paper invoices, they’re easier to store and don’t require physical storage space, and most importantly, they reduce the turnaround time to get paid. Plus, as more consumers prefer going paperless, they’ll appreciate the convenience of receiving electronic invoices from your business.

Set some ground rules

Clients will do what’s most convenient for them if they don’t have a set of rules to follow. Create a standard agreement you can share with clients so everyone’s on the same page. Be sure to let clients know when and how they should pay you.

Send invoices right away

The longer you put off sending an invoice, the faster your client will forget about paying you (think “out of sight, out of mind”). Even more reason to switch from paper to electronic invoices. Paper invoices take time to write up, mail, and make it to your client. Electronic invoices take little time to put together and the invoice is delivered to your client the same day.

Automate follow-up and reminders

After a client receives your product or service, they’ve moved on to the next thing they’ve got going on. And while most times it’s not intentional, most clients will forget to pay. Just like you, they’re busy. They’ll need a reminder and you’ll need to follow up on unpaid invoices. The good news is that you can do this automatically. Using small business software like Keap allows you to set up automatic emails that remind clients to pay without you having to take the time to pick up the phone or resend the invoice in the mail.

Make paying easy

Clients demand convenience, even when it comes to paying for products or services. While cash is a quick way to get paid—if your clients are carrying it—it’s quickly becoming a less desired way to pay for consumers. Instead, people want to pay with a card, mobile payments, or a digital wallet and they expect businesses to accept digital, more convenient payment methods.

Offer flexible payment plans

Payment plans make it possible for clients who can’t pay for a product or service in 1 payment still purchase what they want without having to wait. They also help clients who may be scared off by a large purchase amount commit if they can pay in installments.

Offering clients the flexibility to pay a percentage at the time of purchase and then pay the balance in installments over a set period of time not only increases sales for your business, but also makes it more convenient for clients to do business with you. Fortunately, payment plans aren’t difficult to set up or manage. With help from software like Keap, small businesses can easily set up payment plans with automatic reminders to remind clients to pay their installments when they’re due will ensure you get paid faster.

Accept multiple payment methods

Don’t limit your clients business by only accepting cash or check. Instead, offer a variety of payment methods your clients prefer so they can pay you anywhere, anytime with the payment method of their choice, which continues to trend towards digital payments—specifically mobile payments—which will help you get paid faster.

Accept digital payment

Before you start accepting digital payments, you’ll need to keep a few key things in mind.

Keep payments secure

Whatever digital payment methods you decide to accept, it’s important to make sure you’re transacting over safe networks and keeping your clients’ financial information secure. Update all software regularly to avoid any security vulnerabilities and use unique, complex passwords and change them often.

Keep funding time in mind

Funding time is the period of time during which the payment is processed and usually varies from 2-5 days. It’s important to keep funding time in mind because it’s the period between when a payment is entered and when the funds are deposited into your bank account.

Always obtain authorization

You should always obtain proper authorization for all payments, not only to protect yourself and your business in the event of a dispute or an audit, but to also protect your business against fraudulent activity. You can obtain authorization a few different ways: a document detailing client and payment information, a recording of a phone conversation between you and the client authorizing payment, or an electronic record of a payment entered by the client on your website.

Tell your clients you accept digital payments

When you decide to accept digital payment methods, let your clients know about the new options. Send an email announcing it, include it on your website, or simply tell them when you talk to them. With more and more consumers paying with digital payments, they’ll thank you for it.

Chapter 09: Conclusion

Man working at desk looking at computer monitor

When it comes to keeping a steady stream of money into your business year-round and determining the best payment methods for your business, there’s a lot to consider. Fortunately, small businesses have more affordable options and tools available to them than ever before. If the subject of finances just isn’t your thing or you need expert advice, reach out to your accountant, financial advisor, or bank for expert information.

As you explore the options for your business, keep in mind software options like Keap that can help you streamline your entire business, including getting paid faster and boosting your cash flow.

Chapter 10: About the authors

Author, Besma Bihnam

Besma Bihnam

Besma Bihnam is a senior editor and writer at Keap and has a passion for writing effective educational content for a wide variety of audiences. Besma started her business writing career with Arizona Federal Credit Union. She transitioned to writing for the software industry for a few years and then shifted to the financial sector where she wrote content for some of PayPal’s most critical services. Besma joined Keap in July 2017 and has written both in-product and marketing content. When she's not writing, Besma spends time with her music-loving family and enjoys listening to her husband or kids play guitar, saxophone, cello, and drums just about every day of the week.

Author, Jenn Leslie

Jenn Leslie

As a content creator and blog manager for Keap, Jennifer enjoys writing and editing educational and actionable content for small business owners blazing their own paths. When she’s not creating or editing content for Keap, she spends her time wrangling the chaos that is two mini humans (aka her kids), cheering on the 8-time World Series Champion San Francisco Giants, and hiking the hills of Northern California. Follow her on Twitter: @JenniferMLeslie

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