Good financial health is crucial for any business, and this starts with careful financial management. However, many small business owners feel overwhelmed and continue to put off the task of dealing with their finances. Tempting though it is, this approach won't set your business in good stead for the future. It's important to take charge of your finances today in order to ensure the financial health of your company for years to come. Good financial management always pays off, so follow these useful tips to strengthen your small business.
1. Get to Grips with Financial Statements
Effective money management starts with your financial statements. These are written records of your business performance and financial activity. Maintaining awareness of your business' financial status enables you to make smart decisions and identify any potential problems ahead of time. Here are the most important types of financial statements you need to know about:
- Cash flow statements show how much cash is coming in and out of your company. These reports help you to understand your cash position and identify any issues that need to be addressed.
- Balance sheets are an assessment of your net worth that detail your assets, liabilities and equity.
- An income statement is a complete picture of your business' income and expenditures, which is essential to understand whether you're making a profit or a loss.
2. Create a Tax Plan
Understanding taxes is vital for the financial health of your business. Legally, your taxes must be submitted on time and your statements must be 100% accurate. This sounds daunting, but it's easy with due diligence.
Careful planning can also help you to decrease your taxes through deductions, and these savings will grow along with your business. If you feel overwhelmed, it's worth considering whether hiring an accountant could generate a significant return on investment for your small business.
3. Keep a Separate Business Account
The sooner you separate your personal and business bank accounts, the better. Mixing the two can lead to confusion and tax trouble. Opening a business account will help keep your finances transparent and save a lot of time and stress later on. It's also worth looking into a high-interest business savings account, which can be used to generate equity to invest further down the line. It really does pay to plan for the future.
4. Pay Yourself
Business owners often skip this step during the early days, but it's important to start as you mean to go on. As the owner, it's essential for you to maintain good personal finances to avoid ending up in trouble later on.
5. Cloud-Based Accounting Software
We live in the Digital Age, so use this to your advantage and harness the power of technology to streamline your business practices. Accounting is notoriously time-consuming but cloud-based software is a cost-effective solution that can save you many man hours. You'll be able to access your accounts 24/7 from any device, allowing you to manage your finances remotely for convenience and peace of mind. This type of software also reduces errors to ensure that your data stays accurate.
6. Measure Performance
Keeping a close eye on performance is essential for the success of any business, so create a regular time slot to do just that. Closely examining your expenditures and return on investment (ROI) allows you to make informed choices as you grow your business. You'll be able to cut down on costs that provide little value to your business and focus on increasing your ROIs.
7. Prepare for Audits
You need to figure out which audits your business may receive so that you can adequately prepare for them. It's always wise to maintain accurate financial records to ensure that you're ready for any audit you may face. Learning about different types of audits and the associated selection process can often help you to avoid them, so this really pays off.
Employing these finance tips from the word “go” can help you small business grow and thrive. Whilst it may be tempting to cut corners, it's important to see the bigger picture and think about the long-term financial health of your business. Adopting good habits early in the game is key to your success.