Tracking your small business finances is critical to the success of your company. Unfortunately, following proper financial procedures is often not a priority for entrepreneurs. Many adopt a “I’ll get to it later” attitude or they simply assume that managing their small business finances is the same as managing their personal finances.
This type of viewpoint can get you and your business into a lot of trouble. Here are 5 ways to get a handle on your small business finances.
Separate Your Business and Personal Accounts
This is an easy trap in which entrepreneurs often fall. When they first start their business they think they aren’t making enough money to open a separate account, or they think it will be easy to differentiate between personal and business, despite everything being in the same account.
Keeping your small business finances in the same account as your personal finances is a recipe for disaster. It makes tax time more laborious than necessary and creates a messy audit trail.
Opening a separate bank account for your business should be one of the first things that you do.
Pick the Right Accounting Software
You have a lot of options when it comes to accounting software. Whatever you do, don’t expect to manage your finances through simple Excel or Google Spreadsheets. Whether it is Freshbooks, Quickbooks or another type of accounting software, make sure you select one that has everything you need to seamlessly manage your small business finances.
Track Your Expenses
Expense reports are a must. The tried and true spreadsheet method has been replaced by mobile apps, like Expensify, that make cataloging your expenses simple and accurate. Expensify scans receipts, automatically imports credit card information, integrates with other apps like Evernote and Dropbox, and has customization options among many other features. It’s free for individuals and a modest $5 per employee for businesses.
Understand Cash-flow Projections
Even if your business is bringing in a lot of revenue, you can still be caught short of cash. Cash-flow projections help you to monitor and plan for the future.
Cash flow = total revenue – total expenses
You not only need to estimate how much money will be going in and out of your business; you also need to estimate when the money will flow in and out. When can you expect to receive money from sales or services rendered? How does that correspond to your company’s bills?
Budget for disaster, as well. OpenForum reminds small business owners to “make Eeyeore look like an optimist” and “pretend like you won’t make any money the first six months.” This advice might seem overly dramatic, but it will keep your business from going under. It’s also wise to stay tuned into industry trends and monitor the health of your business vs the health of other businesses in your industry.
You need to prepare cash-flow projections regularly and track all of the money coming in and going out of your business so that you never find yourself and your business in trouble.
Work with a CFO
The worst mistake an entrepreneur can make is to try and manage their small business finances on their own. Don’t do it. You need to work with someone who is an expert in the field. You might not be able to hire a full time CFO, but you can work with a consulting CFO who can help you create the right financial strategy for your business.
Following these steps and properly managing your small business finances, you will keep your business out of trouble and on the path of success.