It can be tricky to start a new business in this competitive world, but the rewards are well worth it. At the onset, you have a lot to deal with and think about – from simple administrative jobs to more complex decision-making. Managing your small business finances is a crucial step to make sure your entrepreneurial endeavor is successful.
Here are the top 8 suggestions for new small business owners to manage their finances in a way that maximizes their chances of success.
1. Rely On Your Bank
The way you set up your banking is actually very important when it’s time to organize your finances. Will Thompson, a finance blogger at Academized and Thesis Writing, tells entrepreneurs to “make sure you’re set up to track your spending for any length of time, and that you have the right accounts for your needs.”
Will continues, “Talk to your banking advisors for information on applying for small business loans, retirement savings plans, and financial tracking throughout the year.”
Your banking institution does have a vested interest in your success. The more money you make and the better you are with your small business finances, the more money you will invest with them.
2. Track Your Expenses And Keep Your Receipts
To stay on top of your expenses, and keep track of your receipts, consider getting small business software or tools that will store them and analyze them for you. These tools keep everything in a digital format, and it helps you stay in charge of your finances and aware of them at all times.
Fintech continues to expand and is making financial management easier than ever before. Through automation and digital software, you can set yourself up for success at the beginning of the year rather than scrambling as you near tax time.
When it’s time to balance the books or review spending, your work throughout the year makes it easy to do this. Look for a receipt capturing tool that can sync with your accounting program.
There are many different ways to automate your receipts and put them into your accounting program. Some people prefer the more old-fashioned way of using a standalone spreadsheet, in which case you have to enter receipts into your program manually. If that’s the case with you, business blogger for Paper Fellows and State Of Writing David McGuff says you should “consider entering your receipts weekly instead of waiting for every month or few months.”
He continues, “It can be hard to do this at first, but it should become a habit in no time and will help you visualize where your business is on a regular schedule.”
3. Paying Yourself
It’s so important to remember to pay yourself a wage as you start and manage your business. This is especially important during the early days when you’re starting.
It’s easy to fall into the trap of trying to put every single cent you make back into your business so you can propel it faster into the realms of success. However, while it’s good to show determination, doing this isn’t a sustainable practice.
You need to make sure your finances are covered, and you can live your life in a sustainable and healthy manner. If not, you’re only going to hurt yourself later down the line. You don’t want your business to fail in the future because you put in so much hard work, but you were unable to look after yourself.
4. Keep Your Personal And Business Finances Separate
We’ve saved perhaps the most important points for last, so they stick with you. There’s nothing more critical than keeping your personal and business finances apart. Keeping a firm line between the two will make it easier at the end of the tax year to file for your returns, and also prevents business cash crunches when you withdraw money for personal spending.
Keep your credit cards and loans separate as well, and never use them for the wrong purposes – you’ll be setting yourself up for unexplained losses and tax nightmares.
Another benefit of keeping them separate is it becomes easier to track your small business’ profitability throughout the year because you know exactly what your expenses and income are. If you loan any money from your personal accounts to your business accounts, keep clear records of this, and when your business turns a profit, you can repay your loans first before paying tax on your earnings.
In fact, it’s essential to make sure you’re paying yourself first, without merely absorbing all the profit immediately. In the beginning, take 10% of your earnings, and you’ll find that consistently putting money aside will show how profitable your business is. This way, you’re also making sure you have a safety margin if you have any unexpected expenses.
Mixing your business and personal finances is a great way to muddy the waters and get yourself in trouble with the government.
5. Send Out Invoices And Follow Up
Sending out invoices can be a strange experience if it’s something you’ve never done before, and you may seem like you’re pestering clients if you’re asking them for money. After all, you don’t want to scare them away. However, you’re a business, and you need to run like a business, and that means not letting people walk all over you.
This means sending out invoices as soon as your goods and/or services have been sent out, and you need to set a deadline stating that these invoices need to be paid within seven days of the invoice being sent. If someone isn’t paying, then you need to make sure you’re creating follow up emails to chase this transaction. You don’t want clients thinking you’re easy to take advantage of.
To make the whole process more streamlined and without any chance for errors, you should implement automated invoice processing.
6. Plan For The Future
Every good business knows that the best way to succeed is to plan and know what kind of path you’re going to take. This applies to all areas of your business, especially your finances. This means figuring out how much you’re going to be spending in the future, how much profit you need to make to cover costs, and then how much profit you want to build on top of that.
For example, if your expenses are $5,000 per month, you need to be at least making this figure for your business to be sustainable. If you’re making $10,000 per month, then you know you have $5,000 to play with, so plan what you’re going to do with it. Are you going to invest it or save it for a rainy day? Perhaps you should think about doing both.
You’ll then want to think about what sort of goals you can set. While you’re making $10,000 per month now, how much do you want to be making in a year? How about five years? The more accurately and clearly you set your goals, the more focused you’ll be on carrying them out and being about to achieve them.
7. Think About Tax Payments
Tax payments are an essential part of any operating business, and you’ll want to make sure you’re thinking about how you’re going to pay your bills. Most companies will pay their tax bills quarterly, but this can change to monthly payments if it’s easier for you to keep up.
8. Lower Spending Where Possible
Finally, you want to keep your business expenses as low as possible even if it’s possible to spend more. Keep your salary as low as you can, and offer limited benefits. The money you save now will give you more flexibility in the future if you hit a difficult month.
For example, if you need to travel for work, keep the costs to a bare minimum – a simple place to sleep and a way to get to your meeting. Anything else is extra and unnecessary.
If you spend too much on more luxurious arrangements, it sets a bad precedent for yourself and your employees, and it’s a waste of money with zero returns. The business trip should be planned as though you were paying for it out of your pocket.