It’s an exciting time! Finally, finally, after a lot of hard work, your new business is up and running, and sales are growing. It’s exhilarating, and it’s daunting at the same time.
You knew your business plan was solid. What you didn’t realize was how much time you’d be spending on finances – worrying about cash flow, paying the vendors, expenses, making payroll. Paying attention to some financial tips earlier would have been a good idea!
Better late than never, but as a small business owner, some practical financial advice would come in handy right about now.
This guide will go over 13 tips on managing small business finances. Some of these are certain to help you run your business more efficiently – with less stress – and ensure your cash flow stays positive!
1. It Starts with Accounting
Take a look at your accounting procedures. Are you following standard business practices to the letter? If you aren’t, now’s the time. A spreadsheet isn’t going to do the job. Not now and indeed not as your business grows.
If time’s available to use a good accounting program, that’s an excellent way to go. Remember though that it needs to be kept up-to-date. Be honest with yourself, and if you don’t think you or someone else will have the time and inclination to use the accounting program, skip it.
Instead, hire a competent bookkeeper and set up a procedure for providing them with all of the expense receipts, accounts payable, and accounts receivable. Your small business finances will thank you in the long run!
2. Watch those Taxes
Get someone lined up to prepare and file your taxes. Unfortunately, taxes are an area that many new and small businesses have trouble keeping on track.
Taxes are a significant expense for any business. So treating them as a top priority, both for legal reasons and for managing your business’s finances, is the only way to go.
Between payroll taxes, sales taxes, quarterly filing reports, state and federal taxes, and whatever else you’ll be filing and paying, this is a job for an expert.
In addition, experts also know what programs are out there – like the Employee Retention Tax Credit, https://erctoday.com/ – that can help your business.
Taxes add too much paper and forms for you to take this on. Remember, You’ve got better things to do, like running the business.
Some bookkeepers are capable of handling small business taxes. If yours is, great; if not, hire a tax pro.
3. Track Every Cost
Keeping track of your costs and expenses seems obvious, but it’s all too easy to lose control when things get busy. Since expenses eat away at profits, you always need to know where you stand.
Having a firm grip on your expenses – fixed and non-fixed – lets you fine-tune them, finding ways to save or reduce costs.
As a simple example, if you keep buying pens at the corner store and don’t keep the receipts, you’ll never realize how much you are spending. Buying pens one at a time doesn’t seem like a big deal.
But by keeping expense receipts and adding them all up, you’ll soon see buying them in bulk saves money.
Setting up a budget projection for expenses is a great way to keep them under control and know when you need to re-visit them.
4. Make Financial Projections
If you haven’t prepared financial projections for your business, now’s the time. But, unless you know where you want to go, how will you know when you get there? What will it cost to get there? How long will it take to get there?
These are the kinds of crucial questions that a well-thought-out set of financial projections will help you answer. A financial plan gives you a roadmap, a way of measuring your progress.
How are sales growing? Are expenses higher or lower than projected? Is payroll on track?
In the process of following the roadmap, you’ll be able to make adjustments and course corrections – no one expects the road from point A to B to be a straight line.
5. It’s Not Personal
Don’t make the mistake of blending your business and personal finances. That’s a recipe for disaster – unexplained losses and potential tax issues down the road. Moreover, mixing your money with business money clouds the actual state of the company’s finances.
Make an appointment to see your friendly banker today if you didn’t open a separate banking account for the business when you first started. Then, run all deposits and payouts through that account.
Having your banker link a business credit card to your business account is a wise idea. That lets you use the credit card to make all of your business purchases – no matter how small – and ensures you have records. Your bookkeeper will love you!
Don’t get in the habit of using the business card to pick up dinner on the way home. That’s not a business expense, and both the IRS and your bookkeeper will be unhappy.
Remember: keep your personal and business finances separate!
6. Ask for the Money
Finding your business in a cash flow crunch isn’t fun, especially when you know you have a lot of outstanding accounts receivable. It might mean you have to get a loan to cover short-term expenses – or even loan the business money yourself.
Promptly invoicing your customers for goods and services delivered is critical, yet too many small businesses let it slide. Get in the habit of invoicing customers immediately.
Setting seven-day payment terms is a good idea, and make clear on your invoices that penalties for late payment will kick in. Another way to encourage payment is to offer a discount on invoices paid early.
It’s a fact of life that many customers delay paying their bills as long as possible. So it’s up to you to make sure you don’t start playing banker for them.
Follow up on your unpaid invoices promptly by email, phone, or text. Be professional, but be firm. It’s your money. Make sure that you have all of the contact information for your customers – and make sure the invoices are going to the person that pays the bills.
7. Pay Back Your Loans
It might be nice if you didn’t have to put your own money into the business, but you will. So, following the rule of keeping personal and business finances separate, document every penny you put into the business.
Those records are critical to avoiding bad tax things happening to you when you start to pay yourself back. And because those documented loans are an expense for the business, they reduce its taxable income.
And as soon as the business starts turning a profit, set up a schedule and start paying yourself back. Leaving those outstanding loans on the company’s books doesn’t do the company – or you – any good.
8. Pay Yourself
While we’re talking about paying people, don’t forget to pay yourself. It may seem counter-productive to pay yourself early on, but you should. Your time and effort are essential to the company’s success, and you deserve to be paid, just like any other employee.
As soon as the company starts turning a profit, begin paying yourself, even if it’s only 10% of the net. Putting yourself on the payroll gives you a good glimpse into the company’s actual profitability.
It’s also important because you don’t want the business to adversely affect your personal finances – getting in that situation isn’t good for you or the company.
The bottom line here is that you need to get paid, and if the company can’t make enough to pay you, you need to know that as you measure its viability.
9. Stay Frugal
Even though the company is paying you, remember that frugality is good. It’s all too easy to get wrapped up in the excitement – and benefits – of owning a business.
Pay yourself the smallest amount you can afford. Always look at expenses as a function of sales. What does an expense dollar equal in terms of sales dollars?
If you need to lease a car for the company, go for the cheapest car that will get the job done.
Let’s look at some real dollars. Car A leases for $325 a month. But Car B, which is a lot fancier, only costs $200 more. But in real terms, getting that fancy car means you need to generate $12,000 more in sales if your net is 20%.
10. Avoid Credit
Sure, you’ve got that shiny new business credit card, and yes, you’ll need to use it from time to time. But, remember you are giving some of your company’s hard-earned dollars to the credit card company every time you do.
On the other hand, there’s no mark-up when you pay with cash or a check. Unfortunately, with a new business that’s struggling to keep its head above water, all of those seemingly small fees add up quickly.
Always be on the lookout for ways to shave percentages off the company’s accounts payables. For example, does your vendor offer 5% off for prompt payment? Whenever you can, take advantage of it – that’s 5% added to the bottom line.
11. Negotiate with Vendors
Always negotiate with your vendors to see if you can secure lower pricing or better terms. Rest assured that if you don’t ask, they won’t offer to take an additional 10% off for you. The kindness of their heart isn’t in question but remember they are in business to make as much as they can.
On any large purchases, always secure written quotes – and use the quotes to negotiate the best possible terms.
Your company’s loyalty to a specific vendor and the potential your business holds can go along in negotiating better prices and terms. If you show promise as a new, loyal customer, vendors are more inclined to work with you.
12. Be Legal
You may have had the assistance of an attorney when you first opened the business, but whether you did or not, there will be times when you need to make sure everything is legally up to snuff.
Any major contract the business enters into needs to be reviewed by a competent attorney. You are brilliant, highly driven, multi-talented, and energetic – but you aren’t a trained lawyer.
All businesses need various standard forms and simple legal documents. Thankfully, there are endless resources online that can provide you with most of what you need – free for download – that you can modify.
13. Make Friends with a Payroll Service
There’s another area where many small businesses leave themselves open to potential liability, and that’s hiring employees and processing payroll. So again, farm it out unless you have a bookkeeper fully versed in administering payroll.
The tax and legal liabilities alone make this an area where not making any mistakes is critical to your company. And, that’s quite apart from the time involved to do it right, the time you can better spend doing what you do best, running your company.
If you can’t find a good, affordable payroll service close to you, there are many good payroll services online. Either way, the certainty that all the necessary records are maintained, withholding done correctly, and tax requirements met is well worth the small fees involved.
Once you’ve set up the payroll service, your only job is reporting your employee’s hours accurately.
Use These Financial Tips
Now that we’ve taken a look at some of the top financial tips for small businesses, you can implement the ones that make the most sense for your company.
Finances are one of the most complicated and time-consuming aspects of small business management. Whether it’s taxes or payroll, there’s a lot to learn and a lot to keep under control.
Following these tips will make your business stronger and save you headaches now and down the road.
You’re probably already incorporating some of them into your day-to-day operations, but there are sure to be a few that can make your business run more smoothly – and more profitably!
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