Starting a business is no small task. There are many things to consider, from the products or services you’ll offer to your branding. You also need to stay on top of your marketing strategy and the day-to-day operations of your company. But one thing that’s just as important as all of those is getting your finances in order. Here’s a guide to help you get started on the right foot.
We’ll cover everything from creating a business plan, setting up bookkeeping and accounting, to staying on top of your taxes. By following these guidelines, you’ll be well on your way to manage your finances smoothly. Let’s get started!
Know financial management basics
Business finances aren’t easy to dive into, but a great start would be to familiarize yourself with financial management basics. For instance, in financial management, bookkeeping and accounting are essential.
Bookkeeping: Tracking all business transactions and keeping them organized in books
Accounting: The creation of reports from data bookkeepers have collected. The accountant makes sense of the numbers and presents insights to business owners for decision-making.
You also must know the different reports you’ll be receiving: mainly balance sheets, income, cash flow, and equity statements. These reports will show you the state of your business finances.
Lay your business plan
In your quest to understand the basics of financial management, you’ll surely come across the process of creating business plans. Gather your team and lay out how you plan to classify your company, your business goals, and what products and services you will offer. Convene prepared with data from market and competitor research. Dig deep into your creative minds and brainstorm marketing and sales plans to stand out from the rest. Most importantly, you need to get into the details of your company’s finances.
As a new business, you don’t have any historical data yet, so you’ll mainly dwell on your capital and assets. Nevertheless, you can always make professional projections and goals. Use this data to guide how your business will sail. Scale your marketing and sales efforts, and, if need be, lower your costs. Create game plans that will help you hit your financial goals.
Separate personal and business accounts
The best way to begin managing your business finances is to separate them from your personal income and expenses. A single account may be convenient initially, but you will experience the inconvenience when tax season comes. When your accounts are not separated, you must prove to the Internal Revenue Service which income and expense fall into which category. Skip this hassle by having a separate business account.
In addition, if your personal bank accounts are integrated into your accounting system, it will be more difficult to protect your privacy.
Give yourself a well-deserved salary
Many business owners are eager to grow and see increased income and profit. Because of this, instead of paying themselves, they add their supposed salary back into the business’s funds to scale their business even faster. Nevertheless, one of the positive financial habits you can practice is to pay yourself and your business partners (if there are any).
You’ll have money for your own needs and expenses when you receive a salary. The chances of you touching company money for personal use will be minimized. And, if the company fails, you’ll have money to spend for yourself or to begin again.
Monitor your cash flow
You’ll be busy with many things in your newly opened business, but despite all the tasks on your plate, never forget about cash flow monitoring. Include the tracing of money coming in and out of your account in your daily operations, and you can easily see and address any mistakes, and even catch fraudulent activities early on.
When all details in your books are accurate, you can also generate flawless and factual reports. Then, you can base your plans and decisions about your business on them.
As you monitor your cash flow, you’ll also know about the costs of your day-to-day operations. As a result, you can save this amount to ensure your business keeps running even when the finances get tight.
Establish financial organization strategies
To stay on top of your business operations, you need to strategize how you will organize schedules, routines, and systems.
Filing Systems: Gone are the days when you have to manually record documents and receipts. Although you can still use a filing cabinet to store hard copies, it would be best to invest in document capturing software. These turn images into text for storing and categorization.
Some of the files you need to track and keep are the following:
- Different kinds of receipts
- Contracts
- Bank statements
- Employee payslips
- Employee, customer, and supplier information
- Credit and loan documents
Bookkeeping and Accounting Software: Check out Quickbooks, Xero, Sage, and other reliable bookkeeping and accounting software. They can be your main accounting system where you integrate your different financial management tools.
These are what these software can help you with::
- Time and project tracking
- Invoice creation
- Providing different payment gateways
- Inventory management
- Reporting
- Bank reconciliation
Encourage on-time payment
Customers not paying on time create a huge cash flow problem. Good financial management practice is finding ways to encourage buyers to pay on time. You can give discounts to individuals who pay early. It also helps when you use an automated invoice containing a “Pay Now” button. Customers can simply click on it and send their payments online, anywhere they are.
Bookkeeping and accounting software also have recurring invoices that can be scheduled for regular customers. The software can also send payment reminders to ensure customers pay on time.
Invest in scaling your business
When business is good and you are profiting, there are various ways you can spend wisely:
- Invest in yourself and your people through salary raises, adding incentives, and offering insurance and other benefits.
- Expand your business both physically or online. Use your profit to gain higher profit in the future.
- Hire more people, especially experts in the fields you badly need. They will make your business operations more efficient.
- Pay loans, debts, and taxes, so you can start with a clean slate or get additional loans.
- Create a fund for emergency money.
If you plan on reinvesting your money back into your business, check on what you’ve spent on before and determine its return on investment (ROI). Knowing which investments paid off and which did not contribute to scaling your business will give you an idea of what to spend on
Stay on top of your taxes
There are a lot of exciting tasks you need to do for your business, but there are challenging ones too, like taxes. You need to take note of deadlines each year to ensure you pay on time. Late or non-payments merit repercussions. You should also prioritize the accuracy of your tax declaration as the IRS checks the details thoroughly.
While there are many tax rates to remember, not to mention that eCommerce sales tax is highly sensitive to change, taxes can be simpler when you invest in tax software like Avalara, Taxomate, Taxjar, Taxify, or TurboTax. These tools store tax data and are updated regularly for any changes in regulations. They also compute your taxes accurately. Some even have the feature that automatically files and remits your taxes for you to meet deadlines every time.
Make wise loan and credit card decisions
Credit cards are a double-edged sword. Improper use of them can put you in deep debt. Nevertheless, with discipline, they can be a savior when cash flow gets tight. Hence, it is best to keep one handy in case you need it.
On the other hand, loans can also assist your cash flow or help you hasten your company’s growth. But remember to get loans you can confidently pay off, and stay away from high interest rates.
Get Your Business Finances Right
Beginning a business is no easy task; one of the most important aspects of success is ensuring your finances are in order.
Separate your personal and business accounts right away. Make sure you are keeping an eye on your cash flow. Create financial organization strategies that work for you and stick with them. Encourage customers to pay on time by establishing reasonable payment terms. Invest in scaling your business wisely. Stay updated on tax laws so that you can file them correctly and not incur any penalties down the road.
Now that you have a better understanding of the basics, it’s time to put them into practice.
