When entrepreneurs have an idea for a business, it rarely involves how they will manage the finances. Still, this aspect is critical to the success of all businesses. Eventually a company may grow to the point that finances are handled by an internal bookkeeper or an external accountant but until that happens, here are a few tips on managing the financials:
Create an Organizational Structure
It is much easier to begin from an organized place than to try to get something together when you’re busy and behind. Set aside a few minutes each week to update your records, track expenses, and other organizational finance tasks. This a lot less labor intensive than realizing after six months of business that you haven’t updated any finances since your beginning bank balance.
Keep it Separate
When a business first starts, it’s tempting to keep business and personal finances in one spot because your business probably isn’t earning enough to be in the black. Still, tracking business finances, profits, and expenses will be much easier if you maintain separate bank accounts. When profits increase you can pay yourself a salary from that account, but for now, different accounts will make tax preparation and tracking money in and out much easier.
Another reason to open a separate business-only bank account is that you want to ensure you are working with a small-business-friendly bank. Maintain your personal account anywhere, but when opening a business account, do the research. Consider asking the bank to attach a line of credit to your account that can help when making purchases during slow times in your business. Speaking of purchases, you may also want to consider a business-only credit card for expenses.
For the business person on the go, cloud accounting is an efficient and safe way to manage your finances from anywhere you have an Internet connection. There are free platforms, like Sage One, that make online accounting simple by providing essential bookkeeping capabilities. Best of all, you never have to worry about leaving financial information at home, at the office, or in your car. It’s all at your fingertips with a couple of quick swipes and clicks.
Manage Quarterly Tax Payments
One of the most difficult things for new business owners is understanding taxes. In your personal finances you’re used to one filing deadline per year. For business, you’ll be filing quarterly. If you’re not disciplined enough to set aside money for your quarterly payments, pay them into a business account monthly. This way, you treat taxes like any other monthly business expense, such as rent or Internet service.
Look to the Future
Monitor your company’s financial progress first by quarters and then year-by-year. Using that data, project future revenue and establish growth goals. This simple projection will help you notice negative trends in your business before they affect your cash flow and bank account. Future projections help you make stronger, more informed future business decisions. If you’re competing against larger, more established companies, you should know they have future projections mapped out. If you don’t, you’re behind the competition.
Make It Easy for Customers to Pay
Businesses that refuse to accept credit cards due to transaction fees risk customers taking their business elsewhere. It may work for merchants that have been in business since the last century, but for today’s new businesses, credit card and debit card payments are essential. Keep in mind that you will pay a transaction fee for each card processed. You’ll want to understand these fees and should factor them in when setting prices. Most credit card companies’ agreements include language about acceptance that clearly states that minimum charging limits cannot be enforced, so if fees seem high to you, you’ll either need to pay for them with profits or increase prices to cover them.
Your great business ideas shouldn’t flounder because you’re unprepared for handling the financial end of things. With cloud accounting software and a few organizational tips, managing your own finances isn’t difficult. The key to successful financial management is maintaining organization and staying in front of it. Don’t allow financial issues to pile up and become overwhelming just before tax time.