As a small business owner, you are constantly learning new things. It’s exciting to have different experiences every day. Learning how to manage small business finances may not be the most exhilarating part of running a business, but knowing how to leverage the information in your books does help you make savvy business decisions. Are you comfortable handling your company’s funds? Boost your financial confidence by applying the following small business money management tips to your operation:
1. Understand the Basics
Great structures start with strong foundations. The more you practice bookkeeping, the more comfortable you will become managing money. Tracking finances doesn’t require years of experience, but you do need to have a grasp of basic accounting principles to manage small business finances.
You must keep accurate records of all your business transactions. Small business accounting software can help you build confidence in managing finances by giving you a streamlined system for recording transactions. The program automatically calculates totals and compiles statements for you. If you run into issues, customer support is there to answer your questions.
2. Know Your Bottom Line
Knowing the minimum amount it takes to operate is important, especially during the first few years of business. About half of all new small businesses fail within the first five years, and poor money management is a huge factor in this number. If you know how low your funds can go, you can catch issues before they snowball into a disaster.
Create a budget that lists all the expenses you expect for your business. Don’t forget to include your living expenses. Forecast revenue to project if you will be able to cover costs. The budget will serve as a roadmap to your financial decisions.
3. Separate Business and Personal Funds
Although separating funds seems daunting, the end result is worth the hassle. Separating your finances makes it easier to track business progress and report income. To separate funds, open bank accounts exclusively for business transactions. This way you will always know how much cash your business has and be able to avoid wasting time, overspending, and making errors on your tax return.
4. Pay Your Taxes
One way to avoid financial confusion is to be aware of expenses, including taxes. The taxes you pay depend on your type of business structure and industry.
For example, if you sell goods, it’s likely you need to remit sales tax. You will pay corporate taxes if your business is incorporated. As a self-employed person, you must pay self-employment tax and estimated taxes.
You need to set aside money as you earn to pay taxes. Don’t spend the money on anything but your tax liabilities. Also, set up reminders for your tax payment schedule. If you’re short on funds when it’s time to send tax payments, the government could penalize or fine you.
Keeping up with tax regulations and payments can be difficult, but there are small business tools available to help you with taxes. For example, Patriot’s Full Service Payroll collects and remits payroll taxes for you. You simply enter your employees’ hours and the tax amounts are automatically calculated. Patriot sends tax payments to government agencies for you.
5. Maintain Good Relationships with Vendors and Customers
Long-term relationships are valuable to your small business. As you operate your business, you form relationships with many people and organizations, including delivery services, repair companies, suppliers, bankers, lawyers, insurance agents, and of course, customers.
By maintaining good relationships, people are more willing to work with you, which comes with financial benefits. You can negotiate more favorable terms with vendors, banks, and other lenders. Also, customers will be more likely to return to your business and pay fair prices for the quality you offer.
6. Strategize Cash Flow
You’ve probably heard that when it comes to running a business, cash is king. Not knowing how to manage influxes in cash often leads to uncertain financial books. Confidently handling the rise and fall of funds starts with managing small business cash flow.
Cash flow measures money as it flows into and out of your business. You can track cash flow to time expenses, spot growth opportunities, and schedule sales. Use a cash flow statement to strategize the timing of your business transactions.
7. Don't Underestimate the Power of Saving
Sometimes, unexpected expenses come up. Equipment needs maintenance, vehicles break down, and the price of supplies goes up. How your business handles unforeseen costs depends on your small business money management.
By depositing part of your earnings into a business savings account regularly, you build a cash reserve to fall back on in case of emergencies. A savings account can be a better option than a line of credit for unexpected expenses because you use your own money. You won’t have to borrow from a bank or other lenders or pay interest fees.