5 ways to manage your business finances
According to a SCORE.org survey, 40 percent of small business owners spend at least 80 hours a year on taxes, payroll, contracts, and working with accountants. Despite the fact that meeting these obligations is absolutely necessary, surely there are ways in which you can better manage your business finances?
Not only will the following suggestions allow you to spend more time on other areas of the business, you should also be able to control spending and enjoy sustainable growth without taking unnecessary financial risks.
- Separate Your business and personal finances
"Separating your business and personal finances is essential for organisational and tax reasons—by keeping these finances separate, you’ll have a much easier time managing your bookkeeping and requirements when it comes to business taxes," says Meredith Wood, founding editor of the Fundera Ledger and a vice president at Fundera.
Another reason for separating your business and personal finances is to avoid legal issues. For example, if you were to ever come up against legal trouble with regards to your business, any personal finances would be protected.
- Create a cash flow budget
Cash flow is the fuel that keeps the fire of any business burning. Therefore, coming up with a budget will enable you to pay all of your expenses on time as well as help manage your revenues and expenses.
Your cash flow budget should comprise a sales/revenue forecast, anticipated inflows (such as accounts receivable), anticipated outflows (such as cost of goods sold), debt repayments and operating expenses. Keep your cash flow budget up-to-date so that it reflects changes to the business.
- Use accounting software
From balance sheets to income statements and revenue forecasts, managing business finances involves a lot of paperwork. Keeping track of this documentation, especially if you manage everything manually, can become overwhelming. That's why accounting software makes perfect sense.
"There are several great accounting software options available that will take the guesswork out of your bookkeeping," says Wood. "Using these cloud-based software services, you can have all of your most important accounting documents just a few clicks away, generate them automatically, and handle invoicing and other bookkeeping needs."
- Pay attention to your debts
Very few businesses are entirely debt-free due to loans for capital equipment, commercial mortgage payments or other types of borrowing. However, it's imperative to keep an eye on borrowing costs and asset debts regularly to keep your finances healthy.
If your circumstances change, you may need to reduce - or increase - your debt funding. Don't forget to shop around either, as there could be better ways for you to borrow. Many businesses save a lot of money by shifting debts to a different lender.
- Fulfil your business tax responsibilities
"Although taxes are often one of the most cumbersome and confusing parts of small business finance, the consequences for failing to file your state and federal business taxes are severe—you could lose your business and even face criminal charges," warns Wood.
Take the time to understand which taxes you must pay, when forms and payments are due, and how to file those taxes, all of which depends on the legal structure of your business.
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