Keeping track of your financial affairs is one of the best ways to make sure the cash keeps flowing. Here are 7 tips for managing finances for small businesses.
If you’re a wannabe small business owner with a great idea, but little-to-no finance or business knowledge under your belt, you’re not alone. Many a man, or woman, has gone before you, learned the ropes, and coming out fighting strong.
The truth is, starting your own business from the ground up is not for the faint-hearted. It takes guts, but it also takes financial acumen.
If you’re looking to go at it on your own, this guide to managing finances for small businesses should set you off right…
How to Manage Finances for Small Businesses Like an Expert
The fundamentals of small business finances are all the same. Open a business bank account, use high-quality accounting software, fulfill your tax responsibilities, etc.
No matter the type of business you own, the financial formula is universal — and it doesn’t have to be complicated either. Here are 7 of the best tips to help you keep a handle on things from day one:
- Keep Personal and Business Finances Separate
We understand that you may be using some of your own personal money to float your business initially. While this is common practice, it’s wise to keep your personal and business finances completely separate, from the beginning.
First of all, it’s important for organizational and tax purposes. Second, it’s important from a legal standpoint. When your finances are separated, your personal money is protected if your business ever runs into legal or financial trouble.
- Always Pay Yourself First
If your business is just starting out it may seem unfair that you pay yourself, first. That money could be used as start-up capital to grow your business.
But just like you create pay stubs and pay your staff, it’s important to do the same for yourself. You are part of the business. If it doesn’t work out, this means you won’t have ever earned a thing from your efforts. Compensating yourself accordingly, not excessively, will keep your finances in good shape.
- Understand Business Accounting Basics
If you don’t come from a financial background, that’s okay. But it’s important to brush up on important accounting basics in order to better understand your own business.
Some basic accounting terms and processes worth knowing include:
- Business expenses
- Cash flow
- Net profit
- Gross revenue
- Break-even point
By understanding accounting terms, essential paperwork, and processes, this gives you a better handle on how accounting affects your business. This puts you in a better position to manage your finances, choose the right accounting software, and more.
- Implement a Strong Billing Strategy
A key aspect of your financial success is a strong billing strategy that ensures you have consistent roll-over cash flow each month. You need to set a billing process that consistently issues, sends, and follows up on client invoices and payments.
Remember that there is no hard-and-fast rule as to how you bill your customers. If you’re struggling to receive payments on time, get creative with how you bill them and the payment terms you set.
Cash that is tied up in unpaid invoices can be a killer for small businesses. This can ultimately lead to business failure. Stay on top of your billing processes, payment terms, and late-paying clients with diligence!
- Pay Your Business Taxes Diligently
If there’s one thing that’s completely unavoidable in life, it’s paying taxes. Don’t make the mistake on defaulting on tax payments, as this can lead to hefty, unwanted fines and even criminal charges.
Make a point of understanding exactly what is required from your business in terms of your tax responsibilities, too. As soon your business is up and running, apply for an employer identification number (EIN). This how the IRS keeps track of all your business tax responsibilities.
If business tax is something you’re overwhelmed by, it may be wise to hire an expert to help you manage, file, and declare all state and federal taxes.
Top Tip: Spread Out Tax Payments
Businesses are required to make quarterly tax payments. But if this quarterly sum of money is a little too hefty, try split up the payments by month. This way, your tax obligations become part of your monthly operating expenses and you won’t feel it as much.
- Financial Projections and Invest in Your Future
In terms of long-term success, making financial projections and plans is so important for business. Basically, this helps you to address future obstacles and forecast a way to solve these problems.
Set aside a sum of money each month and look into growth opportunities where you can. This allows your business to grow and thrive on a healthy financial trajectory.
Ultimately, if you want to attract the best employees and clientele, you need to demonstrate that you’re willing to grow as a business. Investing in your future is the best thing you can do for success.
- Make Business Expenditures and ROI a Priority
While it’s important to keep track of business expenditures, it’s equally important to track whether that money is being put to good use. Return-on-investment (ROI) is a good way to assess whether your business investments make sense. It’s also a great way to tell which investments aren’t worth it.
You want to focus on ROI that comes directly from your business expenditure. By not doing this, you can lose money on irrelevant spending or fail to notice bad spending habits.
Solid Business Advice at Your Fingertips
We hope this blog on how to manage finances for small businesses was helpful. If you’re just starting out as a small business owner, check out the rest of our website for more.
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