Managing finances can be a struggle for small business owners, especially in the early years of operation. Finding ways to cut costs while sourcing new customers and purchasing the required tools to keep the business running smoothly can be a headache. However, staying ahead of the curve is critical for success.
There’s a lot to consider when trying to manage finances for a small business. Here are some of the best tips and tricks to keep you in the black.
Invest in the right tools
Paying for a program that’s targeted toward small business finances, like Freshbooks, can help a small business owner with limited experience in accounting keep proper documentation regarding transactions so that creating financial statements, keeping track of income and expenses, and preparing for tax season is relatively straightforward.
In the early days of a business, it can be tempting to cut costs by tracking everything manually or entering it into an Excel spreadsheet. As your career grows, you have to evaluate the opportunity cost of doing this. You’ll either be focusing on data entry when you could be doing something else or paying someone to handle it for you. Investing in easy-to-use software will save you time and money.
Meticulously track expenses
An office supply order here and some travel expenses there may seem like small amounts at the time. However, they have a way of adding up quickly, especially if you don’t look at the numbers frequently. You may find yourself at year-end looking through expenses and discovering that much of your profit was eaten up by these seemingly innocuous amounts.
Track expenses regularly and look for spending trends that could be damaging your bottom line. If you find yourself spending a lot of money on office supplies, investigate why that’s happening. If travel is becoming an issue, opt for more remote meetings when you can. Keep on top of expenses and work to reduce them as appropriate.
Borrow only what you need
If you’re in the early days or looking to expand, it’s common to look at various business loan options. Borrowing is a great way to improve your credit score and invest in expanding your business. Though only if you do it wisely. Take only what you need and spend it only on what the funds are allocated for. Even with a lump sum of cash in your account, it’s your responsibility to practice willpower.
When borrowing, work your loan payments into your business budget and stick to paying them back promptly. Make a spending plan in advance. Don’t be tempted to buy the Mercedes for a company vehicle when you’ll be fine with a family sedan.
Keep your money separate
Make sure you have a separate account for your personal and business banking. There are a lot of well-meaning taxpayers who end up getting fined because they’re unable to prove the separation between their personal and business expenses.
Many entrepreneurs use PayPal or Stripe for their customer transactions and maintain their separate account through those platforms. The money only enters their personal account when they pay themselves. Whichever way you choose to go, business banking doesn’t need to be complex. Just ensure that when tax time rolls around, it’s easy for auditors to tell when transactions pertain to your business and what ones pertain to your personal life.
Stay on top of things
Set aside time every month to update your bookkeeping. Even if it means paying another business or data entry clerk to handle the task. This will reduce stress when year-end financial reporting takes place and will also indicate problems as they arise, rather than getting nasty surprise months down the road.
With some smart planning and a little extra effort, you can simplify your small business finances and stay on top of things.
Guest-blogger at Syncee. She is a super-connector who helps businesses find their audience online through networking. She frequently writes about the latest advancements in online business and e-commerce.