9 Tips To Be Successful Managing Your Business Finances
Whether you are a brand new business owner or you have been in business for a while getting a firm handle on your business finances is the key to successfully building wealth through your establishment.
A lot of times though, as business owners, it's easy to get so busy and caught up in the day to day running of your empire that you may let your finances fall to the side and so below are 9 tips you can leverage to help you track and manage your money better as a small business owner.
1. Open a business bank account
To accurately track your business finances and avoid any issues ( e.g. IRS issues, financial tracking and forecasting inaccuracies etc) you need to completely separate your personal finances from your business finances ASAP. If you need to take out funds from your business for personal use, plan to pay yourself a salary (e.g. weekly, bi-weekly, monthly) so the withdrawals can be tracked properly.
2. Review your business structure
Most business owners start out as sole proprietors but as your business grows and becomes profitable, you should consider transitioning your business formation into an LLC (Limited Liability Corporation) or corporation to allow for full separation between your business and personal assets in the event of a liability issue i.e. a customer sues you etc. These type of business structures can provide you with a certain level of protection for your personal assets and also have certain tax advantages.
3. Get organized
If you want to build wealth with your business, you need to be organized. This means creating systems to track your transactions, financial documents, accounts and more. There are several business finance apps (waveapps.com, quickbooks.com etc) that you can leverage to start getting your finances organized that will also save you a ton of time.
4. Get an accountant
An accountant can provide you with certain insights when it comes to your business finances, help you get organized and also help with your business tax filings which can be a very complex undertaking. One thing to keep in mind though, is that if you decide to hire an accountant, you still need to be involved in what's going on with your business finances so plan to schedule frequent meetings to discuss the state of things in your business with them.
5. Create a business emergency account
A business emergency account is to your business what your personal emergency account is to your personal life. It can help provide you with a backup or buffer in the event of unplanned business circumstances. For instance, covering payroll during a slow season, replacing a damaged sales order, to making unplanned but required purchases.
6. Create an account to save for taxes
If you are making money in your business, then you will most likely have taxes to pay and so opposed to letting your tax bill surprise you at the end of the year, start planning ahead. Create a savings account specifically for your tax savings where you put away a certain amount (~30%) towards paying your end of year tax bill. You can also plan to pay your taxes quarterly too.
7. Create a business budget - Fully understand your expenses
Your business budget allows you to manage your business finances properly and stay on top of your expenses which is essential for making financial forecasts for your business and becoming profitable. It helps you lay out your income and expenses (budgeted and actuals) and helps you get a clear picture of how your business is doing financially.
8. Get insurance
Having business insurance is critical. From error and omissions insurance to property insurance, it is really important your protect your self from the cost of client suits or property loss or damage. It's a good idea to sit with an insurance broker to discuss your business type and get recommendations on the best type of insurance you should have. No one wants to have a circumstance occur that will require insurance but things happen and it's better to be protected than sorry.
9. Avoid credit card debt
Just because you can qualify for a business credit card doesn't mean you should get your business into debt. Use your budget to plan out your business finances and if you do use a credit card for your business activities, plan to pay off your balance in full each month.
Bola Sokunbi is the founder of Clever Girl Finance and she's passionate about helping women take control of their money so they can live life on their own terms.