Starting a small business is a dream for many people. Unfortunately, half of the people’s business shuts in between due to lack of finance preparation, or there can be multiple other reasons. Properly managing and organizing your small business finances can contribute to the growth of the business and making sure you’re reaching your profitable goal. So, financial preparation for your business whether big or small is vital.
Have you heard this famous proverb?
“The Art Is Not In Making Money, But In Keeping It.”
We know how to start a business, but managing finances can be a key challenge.
Talk to a tax expert:
It’s important to work with an accountant before starting a business to understand the ramifications of all transactions. A good CPA can make life so much easier by handling taxes, payroll, tax filing, and other financial matters.
Figure out funding for the business:
Funding for the business is the biggest decision aspiring business owners need to make. If you have savings and you don’t require funding/loan from a third person then you are better off using your own investment. But if taking a loan is the only option you have, then make sure you can repay it.
Many small business owners neglect to pay themselves. They believe paying others in the business and spending money for business operations is a major component of paying themselves. But what if the business is not running in profit. You fail to compensate yourself as much as others need it to. Obviously, you want to ensure your company and your personal finances are in good shape.
Invest in growth:
It’s important to set some money aside and invest in the growth of your company. Customers appreciate a new level of service. This will create more value for your business and move your business in a healthy financial direction.
Having a good billing strategy:
Every business has a client who is late in payments or invoices. Managing business finances also means managing cash flow to ensure your business is operating properly on a day-to-day basis. Too many unpaid invoices can lead to cash flow problems and ultimately business failure. Offer some kind of incentive for the late-paying customers such as 2% discount paying on time etc. This will help in managing the cash flow of the business.
Plan for the future:
There will always be business issues that can be addressed on a daily basis but when it comes to finances, you need to plan for the future. You have to think short-term and long-term to stay in the cut-throat competition.
Don’t discount the little things:
The little things such as envelopes, letterheads, business cards, technology needs, etc. should not be ignored. Think about the office supplies from the view of administrative staff. Take the cost of these things into the account as they are more significant expenses.
Maximize your liquidity:
It’s important to have detailed calculations to ensure you have reserves to continue your business even during unforeseen times.
It’s very important to have a website in this new technology-driven world. If you won’t create a website you are creating a big mistake. You can clearly communicate your services through this online channel. Customers really want to see how things work with a business.
Monitor your books:
It is an important practice. Keep track of your income & expenses monthly, weekly, or daily to know how much money you’re bringing in the business. Spare some time to monitor and review your books of accounts even if you have a bookkeeper. It will enlighten you regarding your business finances and help you make decisions. Also, keep in mind to do reconciliations.
Keep a separate Bank Account:
As soon as your business starts making money, you need to separate your business account from that of your personal account. If you don’t do this at an early stage of your business, it’ll become difficult to organize accounts, to understand how much money you bought in the business. It will be difficult in tracking income and expenses. So, the sooner the better. Open a business bank account. Allow your income to filter through that account and you can pay all your expenses through this account. It will be easier to keep track of cash flow by reviewing bank statements monthly.
Protect Your Business:
Each business must protect itself. You may want to consider insurance or establishing LLC or S-Corp. Establishing LLC or S-Corp allows you to separate your business identity or finances from your personal finances. Let’s understand this better. God forbid, but in life, if you ever have to go through legal issues, then your personal property and assets would not be liable. Protecting your business is the best way to ensure any legal or financial issues that may come forth do not hamper your personal assets.
Staying organized is an important component in managing sound money for your business. Instead of dealing with tons of paper consider digitizing your paperwork. You can save documents digitally and secure them by using a 3rd party secure service.