Many factors help drive success for your business— but nothing may be as important as proper financial management. Staying on top of your business finances is one of the most efficient ways to make sure the cash keeps flowing. And making it a habit to regularly check your finances can help you avoid business debt and unforeseen financial complications.
Starting a business doesn’t automatically turn you into an accountant (okay, this statement does not apply to financial professionals). You can have the most sincere passion and all the brightest ideas to start a business, but with little-to-no finance experience— things will get overwhelming at some point.
Sure, the finance department can seem like the hub of all your business headaches but it doesn’t have to be that way. Here are 5 ways to help you stay on top of your business’s financial affairs.
1. Separate you from your business.
This means your personal finances. Many, if not all, business veterans highly suggest maintaining a clear separation between your personal and business finances.
You can start by:
- Setting up a separate bank account and credit card for your personal use and your business
- Creating a strict (and separate) budget for business and personal matters
- Keeping track of every single money movement on both accounts
It can be tempting to use your personal budget for business matters (or vice versa) when things get tight. That’s why it’s important to remind yourself that when it comes to money, things can get complicated fast. Mixing your personal and business finances will only lead to a series of unexplained losses.
2. Pay your bills on time (every single time).
Late fees and other penalties only result in additional and unanticipated costs, and you wouldn’t want any more of that. So, it is almost imperative that you pay all of your bills on time, every time—and maintain that as a business habit!
- Set up monthly reminders to stay on top of your business’ monthly billings.
- Keep a record of each billing statement.
Being diligent on your dues doesn’t just help you avoid any financial hassle, but it also helps build credibility for your business.
3. Set aside money for tax season
Dealing with business tax is one of the most daunting things for entrepreneurs. All the documents that you have to prepare and the transactions you have to backtrack—there’s a lot that goes on in preparing for tax season.
One of the key things to help keep your business’ budget intact is setting aside money for taxes. Here are other important things to consider:
- Although business taxes generally depend on what your business is and where your business is located, most businesses follow the 30-percent-of-your-business-income rule of thumb.
- Keep your tax money in a separate business bank account to avoid mixing it with other financial transactions.
- Choose a payment method that best suits your needs and your ability to pay (pre-payment, monthly, yearly).
4. Bring a pro in.
To minimize costs, many entrepreneurs try to handle everything on their own. But as your business grows, forcing yourself to still manage your own books can actually end up costing you far more later on.
This is why many successful businesses recommend hiring professionals, especially when financial transactions become more complex. Certified accountants and bookkeepers can help you understand what kind of payment and deposit terms will work best for your business. They can also help find you more deductions and tax savings.
Not only will these pros help you save money in the long run, but you’ll also have fewer headaches to deal with and get more hours of sleep at night. Plus, who knows better to help you create and maintain a business budget than the people who are professionally trained to do it?
5. Keep track of all your money movement.
Even the littlest amount, as long as it has something to do with your business, keep a record of it. This is an excellent way to always know what’s coming in versus what’s going out.
- Store receipts and other important documents in good old-fashioned folders.
- Create separate folders in your email for digital receipts.
- Write down all day-to-day expenses.
By strictly tracking all of your business expenses, you will be able to evaluate the numbers closely, see how your business is doing, and track every single progress. This prevents any unexpected financial complications.
This simple practice also helps you sleep easier, especially when tax season is around the corner.
To wrap things up…
Ultimately, running a business isn’t easy and that’s why not everyone finds success in it. Successful entrepreneurship does not only require passion and commitment. You also need to have the ability to deal with all the ups and downs of your cash flow.
Keeping your business finances in a harmonious flow is a very challenging process, but you will likely learn most effectively as you go along through the life of your business.
ABOUT THE AUTHOR
Sharita M. Humphrey is an award-winning finance expert, money mentor and Certified Financial Education Instructor. Once broke and homeless, Sharita completely transformed her life and is now a successful entrepreneur and one of the most in-demand money coaches for individuals and business owners of color. In 2020, Sharita was named the National Financial Educator of the Year.