Small Business Finances: Step-by-Step Strategies for Better Money Management

When starting a small business, there just aren’t enough hours in the day. You often wear every hat in the company, from customer service to account executive. That doesn’t leave a lot of time for operational level planning and financial management. Staying on top of cash flow is crucial to business success, but so is managing new clients/customers and taking the lead in sales. For a small business, everything is crucial, and it all needs to happen how. To help keep your finances under control, learn to implement a few steps and processes that will help you focus energy where you need it most – direct services to your customers.

Keep Accounts Separate

The first and most important control you can implement for your business finances is a separation between business accounts and personal accounts. The last thing you want is for private transactions to show up on your business ledger. That type of crossover makes it tough to itemize expenses at the end of the year. Opening separate business checking accounts also makes it easier to see how well the business is performing. You can more easily track cash flow and monitor sales versus expenses.

Separating accounts also allows you to do things like automatically pull out money for tax filings. Many businesses must file quarterly estimated taxes, and having that money already set aside is helpful in avoiding penalty payments. Sales tax should also come off the top for taxable products. It should never be considered income, so it is always best to separate out the money going directly to the government.

Watch Your Pennies

Once you have your accounts separated, you can more easily track your business expenses. Some costs, fixed expenses like rent or mortgage, never change, but variable expenses are usually under your control. If you are having trouble operating in the black, it is in these variable expenses that you will want to start looking for places to make cuts. You can track costs from month to month and see where they are creeping up. You can then compare sales numbers and productivity to see where you might be spending too much.

Find the Right Accounting Software

The method and software you use to track your accounts is critical. Some software packages allow for remote management while others give you easy access to pre-programmed reports. Functionality should be the driving factor in the type of accounting software you choose. Some recommend cloud-based systems for their inexpensive startup costs while others prefer the more complete functionality offered by a locally installed program. Look at how you need your accounting software to function and choose based on the features you are most likely to use.

Hire Professional Accounting Services

Unless you are an accounting expert, spending hours reconciling accounts and doing the bookkeeping may not be the best use of your time. Using a business accounting service can reduce your time spent on administrative tasks and give you top quality financial records. A professional can help you find tax deductions you might miss, help with financial planning for the future and generate documents like a profit and loss statement. You may not need a full-time professional, but having someone you trust to help with the books can help save time and money.

Budget for Everything

When you are first starting out as a business owner, every dollar should be accounted for. Your monthly budget should have a line for all of your fixed expenses and realistic estimates for your variable expenses. Don’t forget to include a line for miscellaneous and plan for unexpected expenses. If you have strict budgeting protocols, you can catch cost overruns early and act to adjust your spending if profits don’t meet expectations. The more carefully you budget, the more likely you are to operate in the black.

Better Financial Controls Give You a Better Long-Term Outlook

Many businesses fail within the first five years. Even businesses that look promising can fail when new business owners lack the skills needed to keep the finances under control. Over ordering on stock or committing to larger fixed expenses too early can put too much financial pressure on a business. By implementing proper financial processes and controls, you can give your business the best chance of success. Manage your money with better budgeting, the right accounting software, cost controls, account separation, and professional accounting services. Managing money well allows you to scale as rapidly as possible and grow your business to meet demand.

Kate Fleming works as a business consultant who specializes in business finance. Her money related articles appear on numerous business websites and blogs.