Making sound financial business decisions can be compared to drinking enough water, getting enough sleep, and having a healthy diet. If you don’t do those things, your health will fail. Similarly, if you don’t make sound financial decisions, your business cannot succeed.

Half of small businesses fail within five years in part due to a lack of good financial decisions. The following are some financial choices that will benefit your business.

Decide on the Amount of Money Needed to Run Your Business

You must determine how much money will be needed to run your business. If you run an e-commerce business that relies on drop shipping, you might not need as much money to get started because you are not holding onto inventory and do not have employees. However, if you are starting your own law firm, you may need to have between $5,000 and $15,000 just to get yourself started. There is not a magic formula to determine how much cash you will need.

Consider the following equation. The net burn rate plus cash needed for 12 months plus the amount of time needed to make more cash will equal your total cash needs. Your net burn rate is the money you have left after you pay your expenses. If your e-commerce store makes $10,000 and your expenses are $3,000, then your net burn rate is $7,000.

Now, calculate the money you need for the next 12 months. If you are a startup, this information should have been built into your business plan. Next, determine whether it will take days, weeks, or months to replenish your money supplies. This will give you a rough estimate of the amount of money you need to run your business.

Decide to Hire Employees or to Outsource

As your business gets bigger, you are going to need to hire some employees. This is true no matter if you are the lawyer hiring a paralegal or the e-commerce business owner looking for professionals to help with your customer identity and access management (CIAM). The bigger your staff, the larger your payroll. It also means that you have to deal with people, which can be time-consuming and costly. Decide if you are going to hire more employees or if you are going to outsource everything.

Outsourcing is typically less expensive. Jobs like security guards, web programmers, accountants, human resources, and copywriters are relatively easy to outsource. Each dollar you save by not paying a salary is more money you can put toward working cash.

Decide What to Do If There Is an Emergency

It is easy to spend every penny your business makes. When times are hard, you will be spending money just to keep the doors open. When things are going well, you want to spend that extra money to grow your business. However, if you are going to make your business a success, decide to set aside money for the future. Your business may face emergencies that are outside of what you could have imagined. There could be a storm that rips the roof off of your building. A global pandemic can shut down business for months. You might get sued. All these things are unexpected and can happen.

Planning for an emergency includes thinking about the worst-case scenario. For example, you should know how to contact a bankruptcy trustee to evaluate your financial options if bankruptcy seems like the only option. It can be a hard decision to make, but if you plan for it in advance, handling the unforeseen becomes easier.

Decide on a Marketing Strategy

Believing that your business will grow without spending money on marketing is like thinking you can eat a ghost pepper and not feel the burn. Certain things are just required to run a business. It is hard to divert meager funds toward marketing. But if you don’t market, your company will always struggle with cash. It is recommended that you dedicate between 10 to 15% of your revenue to marketing. That might seem like a lot of money. If you don’t make that call, though, your business won’t be healthy.


To be a successful business owner, you need to make excellent decisions. Most of these decisions revolve around how you are going to make money, what you are going to do with the money you make, and how you protect it.