10 Tips to Successfully Manage Your Business’ Finances

Being a former entrepreneur and current business consultant, the number one area I see new entrepreneurs struggle with is managing their finances. Although discussing and reviewing the financials of your business may not be thrilling, it is imperative to the success of your small business. So how can you successfully manage your finances even if you aren’t familiar with balance sheets, profit and loss statements, income statements and key performance indicators? Here are a few tips to set you in the right direction:

  1. Have Separate Bank Accounts.
    Many first-time business owners are used to a normal paying W2 job where your employer deducts taxes out of each paycheck for you. As a business owner, this is no longer the case. You will have to pay taxes on your business’ profitability as well as on the salary you pay yourself. Depending on how much your company makes, you may have to do this on a quarterly or yearly basis. Either way, each time you pay yourself, you should set aside around 20% for your taxes. It is also recommended that you set aside a percentage of your company’s overall net income so that your business will be able to satisfy its tax obligations.
  2. Set Aside Money for Taxes.
    One of the first steps you should take once you are ready to launch your business is to open a separate business account. This will help you properly manage your expenses and revenues, rather than having it mixed-in with your personal finances. Not to mention, if you have an LLC, this can take away some of the legal separation you have from your business. There are several options for small businesses to open checking accounts cost free, so do your research to make sure the bank you choose is not charging you high fees on a monthly basis, or has a high minimum balance you cannot meet. It is not a bad time either to consider a business credit card to establish credit for the company.
  3. Don’t Take Out a Loan Without a Plan.
    A large number of business owners become quite eager to run out and find a loan to help them launch their business. This is not always the ideal course of action however. Before deciding you need a loan, consider alternate ways to start or grow your business. Is there a way you can start your company without this investment? Instead of finding money for that glorious restaurant location, perhaps you start off selling/testing products at a local farmers market.

     

    Maybe you have decided that the best option for your business is to seek a loan/financing. Before accepting an amount, understand the implications on your business. This is a new recurring monthly expense you will have to pay, and may constrict the amount of money you have in your bank account each month to grow your business. If you are taking out a loan, have a plan for exactly what it will be spent on. Ideally, you should have a plan where you not only are able to pay the loan back, but make the business overall more profitable.

  4. Have a Filing/Tracking System.
    There are a number of ways to do this depending on your industry, but have a plan to file your receipts and track your finances. This will make your life easier during tax time and will allow you to track your profitability throughout the year. Some people find it easier to track this information on a spreadsheet, but finding a low-cost, or even free tool such as QuickBooks, Xero, or Wave (completely free) can help you stay organized. There are other great tools to track your mileage and expenses, such as MileIQ and Expensify, so do your research and find which products work best for you.

     

  5. Strategy for Collecting Payments.
    This is another essential tool for business owners. How will you be collecting payments? Are you primarily a cash business? Do you have a POS or are swiping cards through a credit card reader? Is there a way to automate payment? This all has a huge impact on how much money you have in your bank account. If you own a business where you have subscriptions, do you have it automated so that you do not have to waste your time collecting money each money? Many financial systems such as QuickBooks and Wave have great tools where they can automatically send invoices and collect payments which are sent directly to your bank account. If you are collecting payments independently or through one of these software systems, beware of their fees. Most companies charge a percentage of your sale for this service, and this should be accounted for in your pricing.
  6. Have Procedures in Place.
    This can help you manage not only your finances, but your business as a whole more effectively. If you notice the inventory in your accounting system is too high, do you have a procedure to accurately count and manage your inventory? How are you paying your own bills? How are you processing payroll? What contracts do you have in place and how are you tracking them? Not only will having systems in place for each part of your business help keep it organized, it will make sure that you are accurately tracking your finances and potential roadblocks to your growth.
  7. Have a Budget.
    Creating and sticking to a budget is arguably the most important factor in growing a business. However, there are several layers to this.

     

    First, understand your business model and pricing. Are your products or services priced profitably? Do you know how much money you make on each sale, and how much in revenue you need to bring in to break-even? Do you have a comprehensive list of all of your monthly fixed expenses as well as understand your variable expenses?

    Secondly, how will you know if your business is doing well? Are there certain goals you need to actively monitor? For example, if you have employees, is your labor percentage appropriate for your industry/running a profitable business? These key performance indicators, allow you to make sure your business is on track to make a profit.

    Lastly, have a savings budget. Although most business owners are running their operation on a shoe-string budget, having a reserve to prepare for potential issues in the future can be important. What happens if you have a large piece of equipment break? Many business owners find themselves in a position where they do not have the funds/ability to cover these unexpected expenses.

  8. Be Consistent.
    This is the most challenging part of managing your business’ finances. Monitoring your business’ financial health is the least exciting, yet most important piece of being successful. Be consistent in checking on your business’ financial health. Set aside a certain day each week, biweekly, monthly, whatever works/feels right to you that you will focus on managing and tracking your business’ financial health. If you allow your business to go untracked, small problems may grow and block your business from reaching its potential. For example, if your labor is consistently 10% too high, or your cost of goods are 10% too high, it is ideal to catch this ahead of time, so you can make changes to your business accordingly. It is impossible without consistently monitoring your finances to determine whether or not you are profitable and on-track to meet their goals.
  9. Spend Time on Education.
    Not everyone needs a degree in accounting in order to understand managing your business’ finances. There are plenty of free resources online to help you understand how to properly manage your business. Whether you spend time watching YouTube videos, finding local seminars, or networking locally, spend time investing in understanding how to effectively manage the financial health of your business.
  10. Ask for Help!
    Being an entrepreneur can feel lonely at times. However, if you are overwhelmed by all of this, you are not alone. There are great resources to help you, such as the Small Business Development Center who will aid you in growing your business. If you are specifically struggling to manage your business’ finances, hiring an accountant can be a fantastic investment. Not only will they help you manage your business’ finances, they can help you maximize your annual tax deductions so you are paying less in taxes! Hiring an accountant means you can spend more time growing and managing your business, rather than taking care of tedious bookkeeping tasks. The average business saves 16% by hiring an accountant, which many times is much more than you will pay them on a yearly basis.

     

    I highly recommend having an accountant you can rely on to help your business grow. BizDev Accounting is a great company who focuses on small business/start-ups’ bookkeeping, payroll and tax preparation needs and offers the lowest rates in the industry. If you are looking for someone to help manage your business’ finances, reach out to the great team at BizDev – https://bizdevaccounting.com/

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