Here are some tips for managing small business finances.
Create a budget and ensure itemized monitoring
Making budget is an excellent tool to track your income and expenses. If you update income and cost in a real time, the real time snap can be obtained if project is making loss or there is desired profitability. Hence, timely decision can be taken to ensure things remain in order.
In simple words, budgeting is a great tool to keep track of numbers and ensure there is no overspending.
Monitor you cash flow regularly
Going out of cash is the biggest problem faced by small businesses. In fact, small businesses do not fail because of low profit/loss but cash flow problems. Even if your business is profitable there is a strong need to keep eyes on the cash flow and ensure collection from receivables is fast and timely.
Although it’s little bit difficult to manage and monitor data for budgeting. However, it’s fruitful and helps ensure business operations remain stable and take some serious action if there is a need.
Use accounting software
Accounting software can help you keep track of your finances, manage invoices, and monitor cash flow. These software are designed to be used by small business owners.
The best feature of accounting software is integration of operation aspects and accounting. For instance, if you perform operation by creating invoice the system takes care of accounting in background. In other words, when you create invoice in software, general accounting ledger is automatically updated and revenue is recorded.
Some popular options for the accounting software include QuickBooks, Xero, and Wave accounting etc.
Separate personal and business finances
It’s important to keep your personal and business finances separate. This will help you avoid confusion and make tax time easier. It’s highly advised to keep separate bank accounts for different businesses and for yourself as well.
Plan for taxes
Make sure you are aware of your tax obligations and plan accordingly.
Being small business owner, it’s important to note there are two aspects of taxation.
Tax planning – Tax planning means how you classify and map transactions. The mapping should be in such a way that it suits tax planning. For instance, if you have paid charity, it should be classified as charity expense. It’s because there may be some tax allowances associated with charity payment.
Tax compliance – Tax compliance means there is a need to comply with laws and regulation implemented by tax authorities. If you do not comply with taxation laws, it might lead to penalties and other financial repercussions.
Negotiate with suppliers
Negotiating with suppliers can help you save money on inventory and other expenses. Try to negotiate better terms or lower prices, and don’t be afraid to shop around for better deals.
It’s always better to do market research and ensure you get best deal.
Keep all of your financial documents organized and easily accessible. This will make it easier to file taxes, apply for loans, and manage your finances overall.
If you are using accounting software, try to upload relevant documents in relevant transactions. It’s highly effective when you need to track documents on urgent basis.
Regularly review financial statements
Review your financial statements regularly, including your income statement, balance sheet, and cash flow statement with following perspectives.
Income statement helps to monitor if there is an income/profit for the period under consideration. If there has been more revenue than expense it leads to profit. On the other hand, if there are more expenses than revenue it leads to loss for the period.
Balance sheet contains as of figures. It helps to analyze proportion of liability, assets, and equity. Further, advanced analysis can be made in terms of ratios and other performance matrices.
If you are small business owner, following tips can be highly effective in managing your business.
- Create a budget in terms of income/cost and monitor time to time.
- Make sure to monitor cash flow of the business. It’s important to note that profitability is something different from liquidity. Hence, there is a need to regularly monitor cash flow needs of your business.
- Stay organized in terms of keeping documents and try to adopt business discipline.
- Make sure to regularly review financial statement in terms of profit and other aspects.