Most small business owners do not have a degree in accounting which can make it hard when they start managing their business finances. Understanding all the different rules and regulations is tough and a mistake can cost you your business. To make it a bit easier, we have come up with 6 easy steps for managing your finances when you are just starting out. These will not solve all your problems but should help you prevent some early mistakes.
Accounting software of professional help
You will need to keep track of certain financial information for your taxes and other government-regulated tasks. This involves a lot of specialized knowledge that you probably don’t have. Rather than spending days trying to figure it out, hire an accountant or use some accounting software. Both these options can be cheap for smaller businesses and it will save you a huge amount of time and effort. More importantly, it will prevent you from making a mistake that could get you in trouble with Uncle Sam.
Track expenses and have a system
Every business has expenses, from new computers to mileage on a car. Unfortunately, many new business owners end up with piles of paper and digital receipts that they struggle to organize. This can mean they miss out on tax advantages or simply forget where they spent money.
To avoid this tangle of receipts, you should create a system for tracking your expenses and make it a part of your regular routine. This could be as simple as an excel sheet but there are also purpose-built software solutions available. This keeps all your expenses in a single place which will save you a huge headache later.
Look ahead and make a plan based on financial experience
One of the most important things you can do while running a small business is put together a plan for your future. Look at your past expenses and any other potential costs to understand what your available cash flow should look like.
Once you know how much money you will likely have available, you can identify any threats or opportunities. By making a plan now, you can find solutions for any issues you come across. Plus, knowing about a financial issue ahead of time means you can put money aside early rather than being surprised by a shortfall.
Set up an invoicing system
Too many companies lose money simply because they fail to keep on top of invoicing. Set up a checklist for yourself for invoicing and use it from day 1. This list should include sending out the initial invoice as soon as you deliver your product, following up on every invoice via email or SMS, and making sure each invoice has a unique reference number so you can match invoices to payments.
Keep business accounts separate
This is a simple tip but it can make your life much easier. Keep your personal accounts separate from your business accounts. Tracking your expenses is hard enough without unexplained deposits and withdrawals complicating the matter. Plus, if you have to explain anything to the IRS, personal activity on a business account will only make it harder.
Pay yourself a percent first
If you are not able to pay yourself a steady wage, try taking a small percentage of your monthly earnings. It is important to pay yourself as this will help you cover unexpected costs and incentivize you to keep going. Paying yourself a percentage can also help you test the profitability of your business.
If you follow these steps, you will avoid a number of financial issues and be better prepared for whatever the future brings.