As a small business owner who’s either starting or has managed to establish their position in the market, struggling with financial management is common. It's not just you because several small business owners suffer from similar situations.
Besides hiring someone to look after the financial aspect of your business, checking through the top 10 accounting software can also help you streamline and automate the revenue and profit you are making from your business.
This comprehensive guide will explore some of the top tips you can follow to manage your finances as a small business owner.
The only way to manage your finances as a small business owner is to track your finances. A well-structured budget is the foundation of financial management for small business owners.
You can start by outlining all the expected expenses that you will incur in terms of the supply, raw materials, packaging, shipping, etc. Besides that, you also need to create an outline for the expected revenue that you are aiming to generate from the business.
When estimating the expenses, you also have to consider fixed expenses like rent and utilities. Once you have your business budget outline, you’d have to come back and review it every time you make the expenses or end up making a profit or revenue. This will help you keep a tally.
When you are starting your small business, you must separate your finances from your business finances.
This means that you can’t accept payments for your business in your account. This will make it difficult for you to keep track of the expenses, leading to a lot of complications.
What you can do is create a separate bank account that will be dedicated to your business. Once done, use this separate bank account exclusively for making business transactions, which includes the expenses and the profits.
This separation not only simplifies accounting but also helps you maintain a clear financial picture of your company.
When talking about “accurate” record keeping of your business’ finances, keep in mind that it is essential for tracking income, expenses, and tax obligations.
This is where you can either use accounting software to automate the process for you or you can hire a professional accountant to help you figure out the processes. They will also be responsible for maintaining the financial records on your behalf.
Also, when you are maintaining your business’s financial records, make sure that you have the transaction record and bills for every purchase and sale that you make. This also includes the receipts, invoices, and bank statements.
Regularly reconcile your accounts to ensure that your records match your actual financial situation.
When it comes to the functioning of your business, you have to keep in mind that cash flow is what keeps your business moving forward.
It represents the movement of money in and out of your company and is crucial for day-to-day operations. If you want to manage your business’ cash flow effectively, the following are the tips you need to follow:
Ensure that you are collecting relevant payments from the customers on time and even making your payments on time.
Always have a cash reserve kept separately from the profits that you generate. This will come in handy during times of crisis.
Regularly review your cash flow statement to identify patterns and trends and to avoid any kinds of discrepancies in the future.
Your aim with the cash flow is to ensure that at the end of each month or year, your business should have a positive net cash flow.
If you don’t want to waste the money that you are earning from your small business, it is mandatory that you cut out unnecessary costs and expenses.
For this, you have to sit down, assess every element and cornerstone in your business, and then conclude which elements are redundant in your business. You can also review your budget regularly to see which areas in the business aren’t necessary and can be cut out.
Cutting down costs might involve renegotiating contracts with suppliers, optimizing your inventory, or finding more cost-effective marketing strategies.
When you are running a successful small business, prioritizing taxes is a necessity. However, we are also aware of the fact that taxes can be a financial burden for some small business owners.
Planning your business’ taxes involves:
Estimate your tax liability based on the kind of sales that you average each month.
Take advantage of the tax deductions by employing and paying salaries to family members, making relevant investments, etc.
If you seem to be confused about the whole ordeal, you can always consult a tax professional or ask your accountant to help you out.
Either way, taxes are often mandatory for flourishing small businesses, so that’s one thing you can brush to the side.
Businesses are dynamic, meaning that you never know what the next moment holds for your business.
This is one of the main reasons why you should always have an emergency fund for times of crisis. What happens when your business is stuck in a loop with no new orders for a few weeks?
You can’t cut out your fixed expenses, right? This is where your emergency fund comes into play. It allows you to have a safety net that you can fall back into when rough times hit your business.
Being a small business owner is a lot more than selling items. You are your boss, meaning that you have to handle your finances proactively. If you have been confused about how to go about the planning, we hope this guide gives you a brief rundown of the dos and don’ts. With careful planning and discipline, you can build a solid financial foundation for your small business and achieve long-term success.