Few occupations are as gratifying as managing a successful business. Although you may still work 40 hours - or more - each week, many entrepreneurs enjoy the thrill of seeing their fledgling enterprise grow.
Despite the excitement of starting a company, managing a business requires exceptional work ethic, critical thinking skills and the ability to delegate tasks. Also, a solid understanding of financial management can be the difference between a successful venture and a failing business.
Here are a few basic yet effective tips for managing the finances of a small company:
1. Invest in invoice management software.One of the biggest challenges that SMB owners face is organizing their accounts payable. Without a reliable system, you may overlook payments to employees and independent contractors.
Not only will this upset your workers, but it will also give you an inaccurate understanding of your finances. You may also end up paying late fees to contractors who required you to sign a payment agreement, or you could overpay a worker and compromise your bottom line.
Fortunately, you can avoid these issues by investing in user-friendly invoice management software. These programs make invoice processing easier so you can stay on top of your accounts payable and avoid a headache come tax season.
2. Prioritize your personal finances.It is critical that you prioritize your personal finances over expanding the company. You may feel the need to spend all your time getting the business up and running, but putting off financial planning can destroy your business.
You can avoid a potential disaster - not to mention an IRS audit or bankruptcy - by paying yourself first. This doesn't necessarily mean skipping employee wages when times get tough, but your personal income should have priority over nonessential expenses such as marketing and worker benefits.
3. Separate business and personal expenses.
There you are at the store, and you need to pay for something quickly. Don’t just hand over your business credit card and expect to sort it out later; instead, be sure to keep separate bank accounts for business and personal expenses.
A business credit card can help you maintain an organized financial profile, and according to Entrepreneur, it can also help with taxes. And if you own an LLC, then combining your business and personal finances can render your liability protections invalid.
4. Don't be afraid to ask for help with taxes.
A tax advisor can help you avoid mistakes that could lead to a costly IRS audit. An accountant can also help you plan your finances so you have enough money for Uncle Sam come tax season.
5. Regularly evaluate and improve your financial systems.
Make sure you set aside time each month - even if it’s only 30 minutes - to evaluate your financial systems. Use this time to analyze your income and expenses, and write down your financial goals for the upcoming month and year. This will help you stay mentally organized and will give you a clearer understanding of your monetary capabilities.
When it comes to keeping track of your small business finances, you are in control. Don't be afraid to ask for help, and never underestimate the power of responsible financial planning.
Ryan, thanks for the interesting article! I want to say no matter what business idea you have, you need to start not with its implementation, but with planning your budget, with an analysis of the topic of money management. If you are not familiar with small business money management, it will be difficult and inevitable. I noticed that the advice is very everyday, because not only entrepreneurs should save money and not waste it on trifles. A successful entrepreneur is also successful in everyday life and correctly calculates his personal budget. At the very beginning of my entrepreneurial path, it was difficult to deal with the budget, I worked for myself, everything depended on me, I gave myself time and went to money management courses (it’s a pity that at that time I did not find such an article where everything was explained to the newcomer). Now I appreciate all advice, because I know how important every penny is in business. Even such regular advice as “avoid unnecessary spending” is important, it seems that all the expenses are necessary, it is not so. Again, this is financial literacy, you just need to deal with the needs and useless spending, and not decide on the spot what you need. Such impulsive decisions do not lead to good business outcomes. The notion of entrepreneurial risk is not justified in this case.