When you started your business, unless you love finance and accounting, you probably weren’t excited to crunch numbers and dig into financial models. Instead, you did it because you love to bake cakes, get people in shape or do whatever is at the core of your business.
But there’s a clear difference between working your business (i.e. baking the cakes) and the work needed to run your business (i.e. making sure you have the money to buy flour for the cakes). One can’t exist without the other, and business owners often make the mistake of putting too much emphasis on working the business while ignoring how the business is run, oftentimes to their detriment.
One of most difficult parts about running a business are tending to numbers that need crunching and financials that need digging into. Without attending to them, your business could be headed for trouble.
But what if managing finances could be less of a pain? Good news—it can be! Below are five tips to help your financial management run seamlessly, so you can get back to focusing on other parts of your burgeoning business.
1. Embrace Technology
If you’re not already using accounting software, you’re making it about 1000 times harder to manage your financials. There are so many excellent options out there. If you don’t have accounting software yet, make it a priority to purchase one in the next few days—it really is that pertinent. But even if you’ve been using accounting software for years, have you stopped and thought, “What other technologies could streamline different aspects of my finances?”
Whether it’s expense management, tracking your employees time for accurate payroll or even something industry-specific (i.e. an app for contractor bidding), you should consider what your biggest financial pain points are, and then research what’s out there to solve them.
2. Get Comfortable With Your Most Important Financials
There are key financial documents that every small business owner needs to know inside and out. These include your income statement (also known as a profit and loss statement), your balance sheet and your cash flow statement. Many of these reports can be generated in your accounting software.
- Income Statement: Your income statement gives you an idea of your business’ net income, which is essentially your revenue minus your expenses. Your business is killing it in sales, but if you’re spending more than you’re making to get there, then you’re perpetuating an unsustainable business model.
- Balance Sheet: Your balance sheet is a snapshot of your company’s financials at a specific point of time, so it’s one of the best tools for figuring out how “healthy” your financials are. It’s important you learn to read a balance sheet, so you can come to the right conclusions.
- Cash Flow Statement: Your cash flow statement is used to track the money coming in and going out of your business over a specific period of time. Knowing when cash is coming in and where it’s going out is key to keeping your business healthy.
3. Get Help
If you currently aren’t working with a bookkeeper or an accountant, that should be your very next step. If you’re a young business and can’t quite afford these services, see if you can connect with a local bookkeeper who you can perhaps barter with. For example, if you run a marketing firm, you could offer your prospective bookkeeper a consulting package in exchange for a few hours of bookkeeping a month.
Not only will this help ensure your key financial documents are accurate, but many accountants are moving into a “consulting capacity” where they can offer you overall financial advice, introduction to helpful apps for your business and more.
4. Save for Taxes
You should open up a tax savings account so you don’t get hit hard, whether that hit comes quarterly or annually. Ask your accountant for advice on setting this up, including structures for any scheduled payments or deferments.
Additionally, ask your accountant what your expected tax rate is. When your business receives a payment, take this amount out and put it right into that savings account. Not only will you be ready to go when you need it, but as an added bonus, you’ll have earned some interest on the money you’ve been saving. It’s a win-win!