Understanding the ins and outs of small business finance isn’t everyone’s favorite topic. For many small business owners, it’s the ‘boring’ administrative side of their role that they’d rather not have to deal with. But understanding the key principles is essential if you want to make your business a success.

According to Business Insider, 50% of businesses fail within the first five years. A huge 82% experience cash flow problems and 29% run out of money altogether. This highlights why keeping on top of your business finances from the start is so important. Not to mention the fact that the government requires you to record financial information for tax purposes.

Even if you outsource your financial book-keeping to an accountant, it’s important to understand what certain key terms mean. This will enable you to have constructive conversations with them or spot any potential warning signs early. In this article, we look at the six key principles of small business finance that you really need to know.

Cash Flow

Cash is the lifeblood of small businesses. Since so many fail due to cash flow problems, it’s important to understand it up front. Cash is the money you have that’s available to be used immediately (as opposed to being tied up in property or product stock). Cash flow is calculated by subtracting the money you have at the start of the month from the amount you have at the end. If you have a healthy cash flow, then it shows that you’re earning more revenue than you’re spending on expenses. But perhaps most importantly, it means you have money on hand to pay suppliers, business credit card bills, or loan payments.

Revenue & Expenses

Revenue and expenses are essentially your income and outgoings. Revenue is the amount of money you generate before paying for things like product stock, overheads, or employee salaries. It’s the total sum that your business creates from sales and is also referred to as ‘turnover’. However, when it comes to small business finance, revenue doesn’t reflect the whole picture.

Expenses are the second part of the puzzle. These are the outgoing costs that your business incurs for things like rent, utilities, product stock, marketing, salaries, payments on SBA loans, and anything else that you have to pay for. When you subtract your expenses from your revenue, you know exactly how much profit your business has made. There’s no point in generating a high amount of revenue if your expenses are equal or more than you earn. This would mean you’re operating at a loss and won’t be sustainable long-term.


Inventory usually refers to product stock that you sell on to customers. It could be clothing, electricals, furniture, food, or any number of other items that your business promotes. Monitoring your stock levels is an important part of small business management because a lot of cash is often tied up in it. If you have too much stock, then your cash flow will be impacted and you may not be able to pay bills. But if you have too little, then you won’t be able to satisfy customer demand or generate enough revenue. So, tracking your inventory levels and seasonal trends is important for forecasting needs and ensuring adequate stock.  


Payroll refers to the payment of salaries and other benefits to your employees. As a small business owner, you’re also responsible for arranging their tax payments, medical insurance, sick pay, and pension contributions where appropriate. So, it’s important to factor all of these variables into salary calculations when you first hire someone. There are also specific forms such as the I-9 (Employment Eligibility Verification) and W-4 (Withholding Allowance Certification) that you’re required by law to submit.

Accounts Receivable & Payable

Accounts receivable and payable are one of the most important aspects of small business finance. Receivables refer to the amount of money that you’re owed by customers. Depending on the type of business you run, you may not always receive cash payments immediately. So, it’s important to keep track of what you’re owed and chase up if they become overdue. Accounts payable refers to the debts you owe to others, such as supplier costs or business loan payments. Staying on top of both will help you to keep your books balanced and cash flow free.


The concept of tax can send shivers down a business owner’s spine. Calculating it is often a complex and time-consuming process which is why it pays to outsource to a specialist. A tax accountant will be able to file your tax returns in no time and ensure you benefit from any relevant allowances. Just be sure to keep records, receipts, and invoices so that you have proof of your financial activity.

What Types of Financing Are Available For My Small Business?

If you’re looking for extra funds, then there are lots of financing options available to small businesses. Merchant cash advances, invoice financing, and business credit cards can allow you to pay for expenses or invest in your operations. There are also loans from the Small Business Administration (SBA), traditional institutions, or online business lenders. If your credit history isn’t perfect, then an online lender like Strategic Capital may be the most viable option. All we ask is that your business has been operating for at least 2 years, turns over $20,000+ per month and that you have a personal credit score of 650 or above.

Small Business Financing Options

Strategic Capital provides business finance to a wide range of organizations across the USA. Whether it’s to pay for your everyday costs, emergency repairs to equipment, or investing in expansion, we offer small business finance solutions without the hassle of traditional banks. Best of all, you’ll benefit from competitive terms and a simple application process, so you’ll soon have more money to reinvest into your business.Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available – we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts. Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. Learn more about our business finance and lending services here.

– Bradley Keys

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