One of the most challenging aspects of running a business is proper financial management. Considered by the majority of business operators as a necessary and unenjoyable use of otherwise productive time, building financial skills, knowing what to look out for in your own budget, and even hiring someone to review the information for you can be a lifesaving to your company.
If you are a small business and you are looking for tips on how to effectively manage your finances, then you are in luck. Below is a three-point guide to the most important things you should consider as you run your own business.
1. Bring Order To Your Small Business Finances
There is you and then there is your company. While you are responsible for your company and may even invest your own money into the company, your business accounting should always be separate from your personal accounting. The closer these two are together, the harder it will be to create a clean budget for your company and get your finances in order for tax season.
While your business may be generating money, the last thing you want to do is to treat it like a personal account. Draw your salary based on what you can afford and what you believe you are worth, and only take from the business account for business reasons. It is common for business owners to use their business account for personal reasons and this can create headaches down the road when having to justify costs and balance the books. By maintaining separate accounts for business and personal reasons, you can ensure that this does not happen to you and that the temptation is kept at a minimum.
2. Budget Realistically
Without a realistic budget, you have no guideline for future months and years of costs and income. Do not budget with the hope that your company will take off. Rather, base your budget on your current earnings and use other companies with your scale and model to determine what growth may be in a healthy economy. Remember, the more realistic you can make your budget, the better off your company will be at saving and using money effectively.
For this reason, it is often considered a good idea to run lean. Even if you are making money, keep your expenses down and stop yourself from utilizing your wealth in overly flashy ways. You may need to bank this money so that if there is any kind of downturn, you are prepared. In addition, make sure you don’t expand your staff too quickly. Hiring an individual represents a significant cost and while their expertise may be helpful, it is best not taking on the cost until they are absolutely needed.
3. Keep Track, Keep Track, Keep Track
It is worth repeating three times because keeping track of your finances and designing a system where information can correctly be input in a timely manner will save your company countless man hours and hundreds if not thousands of dollars. While it may feel like you are a one-man band, you should seriously consider hiring someone as a part-time contractor to review your finances with you and ensure that you both have an effective method in place and are recording everything necessary for tax time.
You will also want to keep records in both physical and electronic form. See if you can store this information outside of the building as well so that incase of fire or damage you do not lose all your records at once. Quickbooks is fantastic for this reason.