12 Best Practices for Managing Small Business Finances
Here are the 12 Best Practices for Managing Small Business Finances:
1) Keep business and personal finances separate:
This is one of the most important things you can do for your small business finances—keeping them separate from your personal finances creates organization, makes bookkeeping simpler and can save you come tax time. You should set up a business bank account, get a business credit card, and use accounting software to track your business expenses separately from your personal ones.
2) Understand your cash flow:
Your cash flow is the lifeblood of your business, so you need to understand it and manage it well. Keep tabs on your inflows (money coming in) and outflows (money going out), and make sure you always have enough cash on hand to cover your short-term expenses. You can use accounting software to help you track and manage your cash flow.
3) Create a budget:
Budgeting is one of the most important things you can do for your small business finances. A budget will help you track your expenses, understand where your money is going, and make informed decisions about how to allocate your resources. You can use accounting software to create and track your budget, or you can use a simple Excel spreadsheet.
4) Know your tax obligations:
Taxes are a fact of life for small businesses, so it’s important to understand your obligations. Be sure to pay your taxes on time and withhold the correct amount from your employees’ paychecks. You can use accounting software to help you track and manage your taxes.
5) Keep accurate records:
Accurate financial records are essential for any business, large or small. Good recordkeeping will help you track your expenses, prepare for tax time, and make informed decisions about your finances. Be sure to keep receipts for all of your business expenses, and use accounting software to track your income and expenses.
6) Understand your financial statements:
Your financial statements—including your income statement, balance sheet, and cash flow statement—are key tools for managing your small business finances. Take the time to learn how to read and understand these documents, and use them to inform your financial decision-making.
7) Use accounting software:
Accounting software can save you a lot of time and hassle when it comes to managing your small business finances. There are many different types of accounting software available, so be sure to choose one that meets your needs. QuickBooks and Freshbooks are two popular options.
8) Stay on top of invoicing:
Invoicing is an essential part of running a small business, but it’s also one of the most time-consuming tasks. Use accounting software to automate your invoicing process, and be sure to stay on top of your outstanding invoices.
9) Manage your inventory:
If you sell products, you need to keep track of your inventory levels and make sure you always have enough stock on hand. Use accounting software to track your inventory, and create a system for reordering supplies when necessary.
10) Understand Accounts Receivable (A/R):
Accounts receivable is the money that is owed to your business by its customers. Managing accounts receivable is an important part of cash flow management, so it’s important to understand how it works. Use accounting software to track your accounts receivable, and follow up with customers who are behind on their payments.
11) Understand Accounts Payable (A/P):
Accounts payable is the money that your business owes to its suppliers. Managing accounts payable is an important part of cash flow management, so it’s important to understand how it works. Use accounting software to track your accounts payable, and make sure you always have enough cash on hand to cover your payments.
12) Have a plan for when things go wrong:
No matter how well you manage your finances; there will be times when things go wrong. Whether it’s a customer who doesn’t pay their invoice or a supplier who raises their prices, you need to be prepared for when things don’t go as planned. Create a contingency fund to cover unexpected expenses, and have a plan for how you will manage if your income decreases.
Conclusion:
No matter what size your business is, proper financial management is essential to success. By following these tips, you can ensure that your small business is on the path to financial health.