Running a business

7 Steps to Organize Your Small Business Finances

The way you manage your small business finances can make or break your success as an entrepreneur. That’s why putting strategies into place that help you organize your cash flow is so important. By making a few changes to the way you manage your money, you can get a better handle on your income and expenses to ensure you stay on track.

Protect Your Finances

The business structure you choose affects how you pay taxes and your personal financial liability. A sole proprietorship is the easiest to set up, which is why many small business owners start out this way. You can’t be separated from your business if you’re a sole proprietor. In other words, you’re personally liable for your company’s finances, including debts that it incurs. The plus side is that in case of a business loss, you may be able to reduce your overall tax liability.

Business partnerships shift the liability from a single owner to two or more owners, or partners, who run the business. When you form a partnership, you typically decide what percentage each partner has in the business. You might split it 50/50 with one other person, or one person might have 20%, another 30%, and a third partner 50%.

When you file your taxes, you claim your percentage in income or expenses. You can still be personally accountable for the debts of your business as a partnership.

When you incorporate your business, you legally make it a separate entity so it’s independent of you. This option requires more work to establish, and you have greater accounting responsibilities.

But you also relieve yourself of the personal liability should your business go into debt. Choosing the best structure for your situation helps you maximize tax breaks and minimize personal liability.

Separate Business and Personal Finances

When you start small, it’s tempting to lump your business income and expenses with your personal finances. But using one account for everything makes it difficult to track your finances, and it can affect your ability to claim business expenses on your taxes. It’s a good idea to start separate bank accounts for your company the day you start business.

The same goes for credit cards if you plan to use them to cover business expenses. At tax time, you don’t have to sort through all of the expenses and income to figure out which belongs to your business.

Understand Your Income

Knowing exactly how much comes into your business helps you budget and ensure you have enough to cover your business expenses. How you track the income depends on personal preference. Some business owners still use the traditional spreadsheet method, while others prefer the more updated online software option.

Systems like QuickBooks Online integrate with your point of sale, inventory, and other apps, so the information gets transferred automatically. You can instantly check in on your business income when you use a cloud-based accounting service. Understanding your business income helps you make informed decisions for your budget and spending.

Handle Bookkeeping and Payroll Online

Managing finances online with bookkeeping and payroll online programs helps you save time and monitor your money closely. These programs save you time because they do the math for you. That also increases the accuracy of your numbers and minimizes the risk of human error.

Cloud-based systems like QuickBooks update automatically any time bookkeeping or tax laws and regulations change, which means your books remain in compliance even if you don’t stay current on the latest changes in the law.

Cut Costs Regularly

When you run a small business, you incur costs, from buying inventory to paying employees. Even though those expenses are necessary, it’s usually possible to reduce your costs so you can improve your profit margins and have more money to invest back into your business. To find areas to reduce expenses, you need an accurate, updated accounting of everything you spend. QuickBooks makes it easy to check on all of your spending. Look for areas that eat up a large amount of your revenue or things that cost more than they should.

Some ways your business may be able to cut costs include:

  • Going paperless to save on office supplies like ink and paper
  • Video conferencing with long-distance clients to reduce travel costs
  • Working from home or downsizing office space
  • Sourcing materials from a new supplier
  • Automating processes to reduce staffing needs
  • Improving the energy efficiency of your office space
  • Paying bills on time to avoid late fees
  • Bartering services with other small businesses
  • Using free or inexpensive marketing methods, such as word of mouth and social media
  • Pooling resources with other small businesses, such as using buying groups
  • Negotiating all rates for physical products and services
  • Shopping around for insurance and other essential services to find the lowest rates

Reducing business expenses isn’t a one-time activity. A regular system of looking at your expenses and finding ways to reduce them periodically helps you stay on top of savings as your company grows and your needs change. For example, as your retail store grows and demands more inventory, you might find a different supplier with better pricing for larger bulk orders you now place.

Payroll is another example. When you start with one or two employees, handling payroll yourself may be doable. As you add more employees, payroll becomes more time consuming, which pulls you from duties that help generate income. When you think of your time as money, the increased time you spend on payroll costs your company money. Switching to payroll online or outsourcing payroll work can save you money.

Create an Invoicing and Payment System

If you use invoicing with your customers, you need an effective system for sending and tracking the invoices. Offering multiple payment options and setting clear invoice payment terms encourages your customers to pay you faster, which minimizes cash flow interruptions. A common option is a Net 30 approach where customers get 30 days after the invoice date to pay their bills. You can change the number of days or offer incentives for paying early.

Online systems let you send invoices digitally and monitor the payments as they come in. When you use QuickBooks Online, for example, you can generate invoices and accept payments easily. The software includes pay links in invoices so your customers can click and pay conveniently. You can also set up the system to automatically send reminders if customers don’t pay on time. This saves you time tracking down outstanding invoices and manually sending reminder emails.

Digitize Financial Documents

When figuring out how to manage small business finances, your documentation system is one of the biggest factors. If you have drawers full of receipts, invoices, and other financial documents, digitizing them can simplify your financial organization process. You keep all documents in the cloud in one central location without the need for physical storage space. It’s also easier to pull up old documents in digital form than it is to dig through file drawers or boxes of old documents.

Backups on digital document storage systems offer increased security, too. Paper copies can degrade over time, and since you only have the original, you run the risk of losing the documents completely in the event of a fire or flood. Having all your vital records securely stored on a remote online server gives you added peace of mind.

Getting your small business finances under control helps your company succeed financially. Effective online tools can help you do that, join over 5.6 million customers who use QuickBooks.

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