Entrepreneurs are experts at wearing several hats and often manage many of their business’ operational functions. But without a background in financial management, even the savviest business owner will struggle to learn the ropes and keep things organized. Here are ten financial management tips for business owners that will help keep operations running smoothly.
1. Keep your business and personal accounts separate
Separating your business and personal accounts is the best way to ensure you stay compliant with the IRS. Even if you are a solo entrepreneur and your finances are closely tied with your business operations, make sure you take measures to separate your personal and business finances by opening a business bank account, applying for a business credit card, and documenting any personal expenses incurred on behalf of the company.
2. Protect your personal assets
In addition to separating your accounts, there are added measures you need to take to make sure you are protected in the event of a lawsuit. If you’re not extremely diligent about managing your business as an independent entity, you could be risking your home and other assets. Make sure that all documents related to your business—i.e. invoices, contracts, purchase orders etc.—include your company name and are signed on behalf of the organization. You may also consider whether you need insurance. Here are some additional tips to help you make sure you’re protected.
3. Move your operations to the cloud
You will save a lot of time and energy by moving your accounting functions onto cloud-based applications. Consider using a program like Quickbooks or Xero to manage your basic accounting structure and use app add ons like Expensify, Zenefits, and Bill.com to mitigate shortcomings and make you a well-oiled accounting machine.
4. Schedule your time
Spend 20-30 minutes each week keeping up with your accounting responsibilities. If you don’t schedule time, you risk creating a mess that will take a lot of energy to reorganize.
5. Know your cash position
A good CEO—not just CFO— knows their cash position at any given point in time. Create a reliable cash-flow forecast that you can use to help inform decisions about your business like whether or not you can afford to hire another employee, ramp up a marketing strategy, or increase production. We put together some tips about how to create both a long-term and short-term forecast in this webinar.
6. Call the experts
If you don’t have the know-how to manage your small business finances or you need a little help with the initial setup, get assistance from an outsourced accounting firm. There are companies who specialize in helping small business that don’t have the resources to hire a full time accountant, and they can be immensely helpful when it comes to showing you some best practices for managing your accounting processes. They’ll likely charge an hourly fee which will save you the payroll expense of an in-house employee and will help transition responsibilities when the time is right for you to hire.
7. Have a backup plan
Every small business owner faces a cash crunch at some point in the lifetime of their business. Don’t get caught in a situation where you can’t afford to make payroll because you’re waiting on slow-paying customers. It takes months to apply for a small business loan from a bank which could significantly impact your operations if you need a quick solution. Here are some creative financing options to consider if you need short-term working capital.
8. Pay your taxes on time
Small business taxes can be complex, but don’t procrastinate just because you’re dreading the added expense of hiring a professional. You risk incurring significant fines if you miss the deadline. Mark your calendar and remember that you can file for an extension if necessary. Here are some tips on how to efficiently manage your taxes including recent updates to filing requirements that you should know.
9. Communicate
If you do find yourself in the middle of a cash shortage and don’t have money to pay some of your bills, reach out to your creditors to discuss a repayment timeline. Don’t make the mistake of risking your business relationships because you shut off communication until the money came through. Business owners understand the complexity of managing a growing organization and will often be more understanding if you let them in on the situation. If you have proof that cash is on the way and you can pay them shortly, bring that to the conversation. Here are a few additional tips about how to talk to your creditors.
10. Pay yourself!
90% of entrepreneurs underpay themselves in an effort to roll investment dollars into initiatives that will help the business scale. Remember that if you’re operating a business, working 80 hour weeks, and not paying yourself a salary, your business isn’t profitable. Determine what the market-based wage is for your position and pay yourself the appropriate amount.
Source: https://www.p2bi.com
