As a small business, keeping track of how money flows in and out of your business is crucial. To handle your finances well, you need to keep in mind the particularities of small businesses and the common-sense practices of personal finance. Here’s how.
Whether you are just starting out in business or have a well-established brand, it is never too late to get a good handle on your finances. Small businesses have a unique set of issues that apply only to them and managing a budget, and cash flow needs a certain finesse to make it all work.
We have prepared this guide to help you manage your budget and streamline your small business finances efficiently.
3 Steps to Stay on Top of Your Business’s Finances
- Look into your accounting and assets
- Learn to manage your flow
- Apply smart personal finance practices
1. Look Into Your Accounting and Assets
One of the things that small business owners often ignore is the accounting process. Most owners know their business inside and out, but when it comes to the accounting side of things, they are at a loss to figure it all out.
Consider Third-Party Solutions
There are dozens of software programs that make small business accounting easy. Combine that with using a CPA to do the heavy lifting, and your accounting needs are met. If you don’t feel comfortable using software to keep your books, you can hire an accounting services firm to do it for you.
Keep an eye on the money of your business. If you let someone else handle your bookkeeping, be sure to set up routine reviews and check the numbers yourself to make sure everything is done correctly and legally.
Keep Track of Your Inventory
Inventory and asset management is another critical piece of the puzzle. Try to keep overhead as low as possible by closely monitoring your inventory and not keeping a surplus on hand.
Maintain detailed asset records, so you know at any moment how much you have in terms of the total value. Knowing what your assets are worth is important during tax time for depreciation.
Know What’s Public and Private
Unless you are a publicly traded company — and most small businesses are not — you don’t have to worry about your finances being available online. However, bankruptcies, your tax ID and other information is available about your business through public records.
Regardless, it is essential to keep proper accounting records and copies of your tax returns for at least seven years, which the IRS recommends to file most claims.
2. Learn to Manage Your Flow
Money is often tight when running a small business. Therefore, managing your cash flow is essential. Here are a few ways to manage your small business’s assets like a pro.
Stick to Your Planned Budget
The best way to do this is to make a budget and stick to it. Spend some time planning out how much your expenses will be each month and how much money you need to make to cover those expenses. By plotting out a breakeven point or scenario plan, you can gauge what you need to do to meet sales goals, satisfy the budget, and even make a profit.
Stay on Top of Your Accounting
Accounting plays a critical role in your business — you need to track your income and expenditure accurately. Hire an expert bookkeeper or invest in DIY accounting software — either housed on your internal servers or in the cloud — to get this done.
Always Review Your Costs
Keep track of all your small business expenses — these tend to add up quickly. Regular reviews will allow you to figure out where your cash goes and streamline those channels.
Don't Forget About Financial Projections
Precise financial projections will help you anticipate future issues and read market trends. Look at trends backed up by your data. Predictions are part of your business plan.
Become an Expert on Invoicing
Invoices are your lifeblood. Without them, you can’t get paid. Here's what you should do to keep the cash flow coming.
- Send out invoices immediately after a sale or service.
- Set shorter payment terms to make sure your clients don't forget to pay you or try to delay the process. Seven days is a fair term for most services.
- Don't be afraid to follow up on sent invoices. Automate the process by creating email templates and text message follow-ups. Make sure to include all invoice details and set clear expectations while remaining polite and professional.
- Cross-reference payments with reference invoice numbers to make sure you don't miss anything.
Documenting what you’re receiving is as important as documenting what you’re spending. Don’t forget to get paid!
Consider Money Management Tools
Finding and using the right tool can make managing business finances a lot easier. There are several paid apps and services available for small businesses. The most popular options are Quicken, Mint, and YNAB (You Need A Budget).
Some banks have developed proprietary budgeting tools such as "virtual wallets" for their clients. Using a virtual wallet lets you track your spending, as well as automate savings. Even a basic spreadsheet can become a powerful tool if you know how to use one. A spreadsheet is robust enough on its own to help you track and manage your money.
3. Apply Smart Personal Finance Practices
You can use many of the same strategies for business finance as you can for personal finance.
Choose a Good Bank
Choose a solid bank that works with small businesses and understands your needs. Find one that makes it easy to perform regular banking functions and offers some extras like:
- Mobile banking through an app
- After-hours deposits
- No-fee accounts
- Competitive loan rates and lines of credit
- Business credit cards
Most importantly, find a bank that you can trust to work with you and your needs. A little extra research is worth it for a great deal more security.
Use a Pricing Strategy
Use the budget you created to come up with a solid pricing strategy for your products. Factor in labor, packaging, cost of the goods and shipping when thinking about how to price your wares. If you’re a service provider, consider what parts of your labor result in chargeable hours and how to price your time, skills, and costs of doing business.
Formulate a Good Collections Process
Provide a simple payment system that customers can easily pay you. In some cases, that might mean accepting credit cards or other electronic forms of payment. Have a structured approach to collecting payments and a follow-up procedure for customers who are late or whose payment is declined.
Don’t forget to pay yourself first. Always keep your personal finances separate from your business to protect yourself from any liability.
Invest in the Future
Sometimes you have to spend some money to earn money. Take your time when determining when it makes sense to invest in the future of your business and upgrade equipment or assets and when it makes sense to keep what you have.
Always plan ahead and keep a small slush fund for unforeseen expenses that come out of nowhere. Life happens, and in business, it will too, be ready and have a plan for someday.
Create Good Financial Habits and Stick to Them
Start early in your business creating good financial habits and stick to them. Routines keep things flowing smoothly and consistently. When it comes to business, that is a good thing.