Running your own business is an adventure. There’s the excitement of building something from the ground up, the freedom to call your own shots, and of course, the challenges that come with it. One of the biggest challenges? Managing your finances.
Let’s face it: accounting can feel intimidating. The beauty of it all is that things don’t have to be complicated at all! Following some advice and tricks, in managing your business finances without having to transform into a professional accountant entirely is very much feasible.
Regardless if you are entering the world for the time or have been navigating through it for quite some time now; these seven financial pointers will assist you in maintaining a tight hold on your financial situation and steering your business towards a successful trajectory.
1. Understand Cash Flow Management
Let’s start with the backbone of your business, cash flow. You’ve probably heard the phrase “cash is king,” right? Well, it’s true. Cash flow refers to the money coming in and going out of your business. When more is coming in than going out, you’re in good shape. But when the opposite happens, things can get stressful fast.
So, how do you manage it? First off, keep a close eye on where your money is going and when it’s coming in. If you’re waiting on customers to pay their invoices, you could be in a tight spot when bills roll around. A simple fix? Shorten your payment terms. If you’re giving clients 60 days to pay, consider bringing it down to 30. You get paid sooner, and your cash flow stays healthy.
Think of cash flow as the lifeblood of your business. Without it, even the most profitable company can hit a wall. Don’t let that happen to you, stay on top of it.
2. Automate Where Possible
We live in a digital age, take advantage of it! Numerous tools are available to simplify accounting tasks, for entrepreneurs, like yourself; leveraging these resources can streamline your operations significantly and reduce the risk of errors. For instance, using accounts software can streamline everything from tracking expenses to generating financial reports, and even setting up recurring invoices. It’s like having a virtual assistant for your finances.
By automating repetitive tasks, you free up more time to focus on what you love, growing your business. Plus, automation reduces human error. After all, nobody wants to make a costly mistake on a tax form, right?
3. Stay on Top of Tax Obligations
No one loves tax season, but as an entrepreneur, it’s something you can’t avoid. One of the most common pitfalls for small business owners is getting caught off guard by taxes. So, how do you stay ahead? Be proactive.
Keep track of important tax deadlines, quarterly payments, sales tax, payroll tax, whatever applies to your business. Missing a deadline can result in hefty penalties, and that’s the last thing you need when you’re trying to grow.
Another tip: save yourself the stress by setting aside money for taxes throughout the year. If you set aside a percentage of your revenue for taxes every month, you won’t have to scramble to come up with the cash when the IRS comes knocking.
Not sure where to start with taxes? It might be worth investing in tax software or hiring an accountant. A professional can help you maximize deductions and make sure you’re not paying more than you owe.
4. Regularly Review Financial Statements
If financial statements sound like something only big corporations worry about, think again. Every entrepreneur, no matter how small the business, should be reviewing their financials regularly. The key documents to know? Your balance sheet, income statement, and cash flow statement.
The balance sheet shows what your business owns (assets) and what it owes (liabilities) at a specific point in time. The income statement (or profit and loss statement) tells you how much revenue you’re bringing in versus your expenses. And the cash flow statement, as we discussed earlier, keeps you in the loop about how cash is moving in and out.
Reviewing these documents might not sound like a thrill, but they provide a snapshot of your business’s financial health. It’s like going for a check-up, regular reviews mean you can catch potential problems early on. And who wouldn’t want that?
5. Budget for the Unexpected
One of the most important lessons in business? Expect the unexpected. Whether it’s a broken piece of equipment, a sudden legal fee, or a slow sales month, unforeseen expenses can hit hard if you’re not prepared.
That’s where a contingency fund comes in. Setting aside a portion of your profits for emergencies is crucial. How much? A good rule of thumb is to have three to six months of operating expenses saved up. That way, if an unexpected cost pops up, you won’t have to dip into your personal savings or take out a loan to cover it.
It’s easy to think, “That won’t happen to me,” but business is unpredictable. Ensuring you have some savings set aside can provide a sense of security and support you during challenges or setbacks.
6. Separate Personal and Business Finances
If you’re using your personal bank account to cover business expenses, it’s time to draw a clear line. Mixing personal and business finances might seem harmless at first, but trust me, it’s a recipe for disaster down the road. Not only does it make bookkeeping a nightmare, but it can also land you in hot water come tax time.
The solution? Open a separate business bank account. It’ll make tracking expenses easier and give you a clear picture of how your business is performing financially. Plus, it’s just good practice. Got a business credit card? Use it for business purchases only. Keeping things separate will help you avoid messy entanglements and protect your personal assets if anything ever goes wrong with the business.
7. Seek Professional Help When Needed
You don’t have to do it all on your own. In fact, there are times when it’s smarter to call in the pros. Whether it’s a tax issue that’s beyond your expertise or you need help navigating financial growth, there’s no shame in seeking professional advice.
Bringing onboard a bookkeeper or accountant may come across as an expense; however; it is actually an investment, in the well-being of your business operations. They can assist in pinpointing areas, for cost savings. Help you steer clear of tax complications while also guaranteeing the precision of your records.
Need to get your finances in order before tax season? An accountant can make sure everything is squared away. Expanding your business? A financial advisor can help you plan for the future and ensure your growth is sustainable.
When you’ve got a financial expert in your corner, you can focus on what you do best: running your business.
Conclusion
Accounting doesn’t have to be complicated, and it certainly doesn’t have to be scary. By following these seven tips, you’ll have a solid foundation to keep your business financially healthy. Understand your cash flow, keep your personal and business finances separate, stay on top of taxes, review your financial statements, budget for the unexpected, automate when possible, and don’t hesitate to seek professional help.
Running a business is challenging enough without worrying about a financial mess. So, why not simplify things? With these accounting tips, you’ll be able to focus on what really matters, building your business and watching it thrive.
Now, what will you do first?
