For many business owners, managing budgets, instituting a regular billing cycle, or searching for the best online invoicing software may be an afterthought. After all, you’re actively working on paying projects, so you know the money is coming in. That’s enough, right? Wrong.
Managing finance for a small business the right way not only saves money in the long run, but it can set you up for success, professionally and personally. However, while some business owners have a knack for small business finance, others may not.
That’s why, in addition to having a solid financial plan, you should rely on small business accounting software that’s easy to use and provides the data you need when you need it. Keeping all your finances under one roof, so to speak, will help grow your business and provide peace of mind, so you know your company is running as it should. Taking time every week to review financial reports generated through that software can keep your business on track, allowing you to rest easy when you clock out for the day.
Where to start
The most important thing you can do to manage finances for a small business is establish a realistic budget and financial plan. However, it’s not enough to simply outline your plan. You also need to stick to it. That means staying organized and regularly assessing your expenses versus income, cash flow, and other aspects.
It’s sometimes easy to put off financial work, especially if you have a lot of profitable projects on your plate. Keep in mind that managing money is just as important as earning it. Here are some tips to help you handle small business finances:
Tip No. 1: Use efficient small business accounting software
There are easy-to-use, tried-and-true accounting software options that allow you to track income and expenses for all types of businesses. Choose a system with a user-friendly, dynamic dashboard that provides a quick snapshot of things like cash-flow projections, overdue customer invoices, sales history, and revenue. This will allow you to see which projects are making money and which ones are costing you, so you know what kind of work is most beneficial for the future. Additionally, your small business accounting software should track your inventory, so you’ll never miss a sale because an item is out of stock.
Tip No. 2: Establish a reasonable budget
Your budget is the backbone of your small business finances. To start, make a list of your expected monthly income and expenses, such as your owner’s distribution, insurance, loan payments, payroll, and taxes. This will show how much income you require to meet expenses and make a profit. It also helps you plan for the future, so you can reach your goals and grow your company.
Tip No. 3: Review reports regularly
Financial statements provide a plethora of helpful insights about finance for a small business. Here are three basic financial statements with which you should be familiar:
- A balance sheet shows your business’s assets, liabilities, and equity. It also helps you determine whether or not your business can pay its bills, purchase additional assets, or secure financing.
- A profit and loss statement displays your business’s revenues, expenses, and profit or loss over a period of time. This statement can help you determine which aspects of your business are profitable to show investors and lenders the financial health of your company.
- A cash flow statement outlines funds moving in and out of your business over a period of time, so you can identify which time of year your business may regularly experience increased or decreased revenue. This will enable you to better plan for the entire year as well as the future.
Tip No. 4: Set up a solid billing strategy
If you find yourself only invoicing when you need money, it could leave you scrambling to pay bills or cause you to lose your business altogether. In fact, cash flow issues are a leading cause of business failure, so it’s vital to bill regularly even if your accounts have plenty of funds. Select an online invoicing software to create and send professional invoices and receive digital payments. Additionally, if you have consistently late-paying customers, try changing your payment terms to 20 days instead of 30 or instituting customer rewards, such as a 2% discount if clients pay their invoice within 10 days.
Tip No. 5: Stay on top of your taxes
Planning for taxes, such as self-employment and income taxes, will help you save big in the long term, and a sales tax software for small businesses allows you to stay organized and manage those expenses accordingly. As a general rule, you should set aside 30 to 40% of your income for federal and state taxes. However, it’s a good idea to consult an experienced tax professional who can help you hammer out a strategy to comfortably meet your tax obligations.
Tip No. 6: Bank money for future growth
It’s true what they say: You have to spend money to make money. That’s why you need a savings strategy, so you’re ready for future investment opportunities that will not only help your company grow but thrive. Saving money for the future also helps you to invest in your employees, allowing you to hire a quality workforce to meet the high standards your clients expect.
After all, one of the best marketing strategies is word of mouth, right? Solid, high-performing employees can lead to satisfied customers that will recommend your company to their family and friends. Saved money may also allow your business to invest in stocks, gaining a potential passive revenue stream to help gain capital.
Managing your small business finances takes time. However, if you do your due diligence and stay organized, you can not only enjoy running your business, but you rest easier knowing your company will have a promising future.