Many business owners go into their first project with a lot of great ideas and plans. They may feel comfortable drafting a business plan, creating marketing, hiring great partners, and finding the right location for their business.
Where many business owners struggle, however, is understanding the details of their business’s finances. Since cash flow problems are one of the biggest reasons that companies fail in the early days, managing your company’s finances carefully can help your company succeed over time.
Not sure how to handle your company’s money? These tips will help you get started.
1. Educate Yourself About Finances
If you’re not sure how to manage your company’s money, the first thing you need to do is learn the basics of business financing. You don’t need a business degree or an MBA to understand invoice and a balance spreadsheet; many community colleges offer basic classes to cover the ins and outs of business accounting. You can also find online courses, or do basic research online.
2. Separate Personal and Business Expenses
As a sole proprietor, your business and personal finances are often deeply entangled. As your business grows, especially as it begins to incur debts, it is important to begin separating your personal and business finances.
You should have a separate bank account for your company, and profits from the business should be clearly transferred as such; money that you take from your personal accounts to support your business should be marked as loans that you pay back when possible. Forming an LLC can protect you from business debts.
3. Know Your Local Resources
When you’re working for yourself, it can sometimes feel like you’re reinventing the wheel. Don’t give in to the urge that you need to DIY everything from scratch. Find local resources, like business focused credit unions, local mentors, and your county’s Chamber of Commerce to get help organizing your business and learning about how to manage finances.
If you are part of minority group, such as a woman, Latino, or a veteran, there may also be specialty resources available to you. An online search is a great way to start.
4. Find The Right Accounting Software
There are expensive and comprehensive accounting software products available in many different formats, but they are often more than the average small business needs. There are also online products available in many different areas, from invoicing to accounting to easy exporting for tax preparation.
Some of these are free while others require nominal fees, depending on the income of your business and the number of users who access the information.
If your accounting is complicated and you’re too busy to handle the finances properly, consider hiring a bookkeeper; someone who manages your invoices, tracks your accounting, and helps you prepare income and expenses for tax time can be an incredible boon for your business.
5. Invoice Quickly – And Follow Up On Late Invoices
One huge mistake that businesses make is not keeping up on your invoicing. Prompt invoicing helps you manage your income and your expenses. It’s also important to follow up on late invoices; if you set 15, 30, 60, or 90 day terms, make sure to track those invoice due dates and contact clients if the invoices aren’t paid in a timely fashion. You can charge late fees if invoices are paid after the due date, or offer a discount if the invoice is paid immediately.
6. Look For Trends To Plan Cash Flow
When you’re working hard to make your business profitable, you can get focused on the immediate moment; how are you paying your employees this week, and what invoices are due tomorrow. The key to longer term success, however, is being able to look at your income and expenses month over month and looking forward to year over year trends. This allows you to save up cash for slower times and know when cash will be flush for investment and opportunities.
There are many different pieces to managing your company’s finances. You need to understand your tax liabilities, payroll, invoicing, income and expense sheets, balance sheets, and more. If you don’t organize your business financing properly, you can end up in trouble with an audit, or simply running out of cash to keep your business in operation. You can also miss out on investment and expansion opportunities because you’re not sure if you can afford them.
If you don’t know how to manage basic accounting and business finance tasks, don’t beat yourself up about it; just commit to learning now, and making sure that you handle things properly going forward.
Article published by USA Business Insurance Services, Inc.