By Sean Price
Good financial management is essential for the success of any business. Yet small business owners often struggle with their financial management, particularly in the early days of their business, mainly because they lack the experience and background in financial management.
This is more common than most people think, as small business owners typically grow because of their ability to provide a good service or product, so many don’t have much experience dealing with business finances.
Here are seven tips to help manage your small business finances more efficiently.
1. Start by Educating Yourself
Every small business owner should start educating themselves on the various components managing their business finances. Understanding what financial statements are is an important part of this, as this is the main statement of your current financial situation, so everything starts from here.
There are a few important parts of a financial statement that you should educate yourself on – cash flow, income, and balance sheets.
Cash flow statements provide information on the current flow of cash in and out of the business, from incoming and outgoing finances, investments, and various operating activities.
Balance sheets offer detailed data regarding assets, liabilities, and equity, while the income statement provides a complete picture of the current and previous revenue generated.
2. Always Have a Separate Business Account
You should aim to have separate business and personal accounts as soon as possible, otherwise, you may struggle to properly manage finances and have some tax issues into the bargain. Instead, open a business account and manage all business finances from there, as this offers a clearer image if of profits, expenses, outlays, and other important financial data.
It may be worthwhile to open a business savings account. This means you can transfer portions of income into a high-interest account, which is especially useful for generating equity that can be invested elsewhere or used to pay tax.
3. Don’t Forget to Pay Yourself
Many new business owners forget about paying themselves in the early days of their organization. It makes sense, income may be low and there are various expenses to be paid and you want the business to grow, but never make the mistake of not paying yourself.
You are a core part of the business and should be paid as such. It’s hard to maintain good business finances when your personal finances are struggling from a lack of pay, while you may end up in a serious financial situation should the business not work out and you’ve not been paid.
4. Use Cloud-Based Accounting Software
Technology is one of the most useful tools for small business owners. It takes many days to day business activities more efficient and streamlined, with accounting software being a notable example of this.
Cloud-based software provides 24/7 access to your accounts, allowing for detailed management whenever you need it. It’s also available on any device so you can manage finances remotely, while various financial processes are much quicker and easier to complete on cloud software.
For instance, you can generate automatic financial reports to get a better idea of the financial situation of the company. Errors are also significantly reduced, so your financial data is far more accurate than on any other system.
Bespoke cloud-based accounting software is widely available too, so it should be easy to find a product that meets your requirements and budget.
5. Always Stay on Top of Tax Planning
Tax planning is often difficult for newer business owners that aren’t familiar with the processes. However, taxes are a huge expense for a business and should be treated as a top priority when managing business finances.
With a good tax plan in place, you increase the chances of reducing taxes through deductions and increasing savings, which can add up to a significant sum of money over time. Furthermore, you need to ensure all taxes are completed on time and are completely accurate, which is always easier when planning ahead.
6. Monitor and Measure Performance
While an obvious process for good financial management, never overlook the importance of monitoring and measuring performance. Dedicate time every week or month to overlook your books and see how things are performing, which allows you to make data-driven actions to get results you want.
Measure current expenditures and return on investment to see how finances are performing, looking for what investments are working out and which are not worth pursuing any further. You’ll find wasted expenses are reduced and ROIs increase when monitoring and measuring financial performances.
7. Become Audit-Proof
Understanding potential audits your business faces helps you to be better-prepared for them, even avoiding them in many cases. For instance, you don’t just get an IRS audit, but also audits regarding income tax, employment tax, sales tax, etc.
Educate yourself on the types of audits you can receive and the rules that you need to follow, while maintaining strong financial records such as invoices, receipts and accounting data, all of which help survive any audit you may face.