Running a small business can be incredibly rewarding, but it also comes many day-to-day financial challenges. That’s the reason why properly managing your small business’s finance and accounting function is essential for long-term success. In this article, we’re presenting “Small Company Finance & Accounting 101”. Here are some very basic tips to help you handle your small business’s finances in the best possible way.
Use a Detailed Annual Budget
You can start by developing a comprehensive budget that outlines your income and expenses. This budget should be realistic and updated regularly to reflect changes in your business. Keep a close eye on both fixed and variable costs to maintain control over your finances.
Separate Personal and Business Finances
This is not just important for tax purposes, but also to be sure you really understand how your business is performing. One of the biggest mistakes small business owners make is mixing personal and business finances, a fact that accountants all over the world (e.g., GSMAccountants.co.uk) fully appreciate from their routine work serving small company clients. Open a separate business bank account and use it exclusively for your business transactions – this separation is crucial for tracking business expenses and simplifying tax reporting.
Track You Expenses Carefully
Maintain accurate records of every expense, no matter how small – this includes receipts, invoices, and bills. Good record-keeping will help you make informed financial decisions and ensure you claim all the deductions you’re entitled to during tax season.
Minimize Unnecessary Costs
Regularly review your expenses to identify areas where you can cut costs, which might involve renegotiating contracts, switching suppliers, or adopting more cost-effective technologies. Every dollar saved is a dollar that can be reinvested in your business. This is a common mistake even among successful entrepreneurs who are growing their business fast and enjoying lots of customers and revenue – they end up taking cost management for granted, and this shortfall comes back to bite them during tougher times.
Understand Your Cash Flow
Managing cash flow is a top priority for small businesses, so you must ensure enough working capital to cover your operating expenses. Monitor your accounts receivable and payable to keep your cash flow healthy. Remember, “Revenue” is not cash! You have to collect on invoices, pay your bills timely, and then understand exactly what is left in terms of cash flow to owner(s).
Set Financial Goals
You should also establish clear financial goals for your small business. How do you expect to grow? New locations, new products and services, new distributors, etc. These goals can include increasing revenue, reducing debt, or saving for future investments. Having concrete objectives will guide your financial decisions and motivate your team.
Prepare for Taxes All Year Long
Don’t wait until tax season to organize your financial documents. You should keep your business taxes up to date by setting aside money for quarterly estimated tax payments – this will prevent any unpleasant surprises when tax time comes around.
Seek Professional Advice
Sometimes, it’s best to seek professional assistance. Hiring an accountant or a financial advisor can help you navigate complex financial issues, ensure compliance with tax regulations, and develop strategies for growth.
Plan for Emergencies
You must also create an “rainy-day” or emergency fund for unexpected expenses or downturns in your business. When you have a financial cushion, this will help you weather tough times without jeopardizing your long-term financial health. This is critical to sleeping well at night, every night.
Monitor and Review your Financial Statements
Regularly review your financial statements, including your balance sheet, income statement, and cash flow statement. Doing this will give you insight into your business’s financial health and help you make informed decisions.
Continuously educate yourself about financial management. For instance, you can read books, attend workshops, and stay updated on financial trends and best practices. The more you understand about your finances, the better equipped you’ll be to handle them effectively.
Managing your small business’s finances is a critical aspect of business ownership. By following these top tips, you can establish a strong financial foundation, reduce stress, and pave the way for your business’s long-term success.
About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides flexible contract CFO & Controller services, business valuations, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, valuing businesses, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance has a team of more than 45 professionals serving more than 120 companies in the Carolinas and beyond.