Do you operate a small business or work for someone who does? You’re not alone. In fact, a recent study revealed that nearly 60 million Americans work for small businesses.

But let’s be real. Even if you have a brilliant, million-dollar idea, your visions won’t go very far if you can’t manage and organize your business finances.

Let’s get into how you can optimize your money management.

Know & Assess Your Budget

You can’t properly manage your costs if you don’t know your budget. Before you even start planning out your business, you should take the time to think, plan, and reassess your budget thoroughly. This brainstorming session could be the most valuable business tool you have.

By understanding your budget, you can best allocate your resources and differentiate needs from wants. You can determine essential factors like how much you can devote to different salaries, marketing plans, or equipment.

A budget will change with time, so make sure that you’re considering your cash flow and business needs as you edit your financial situation.

If you don’t know how to set a business budget, start with the following blueprint.

  1. Add Up All Your Income Sources

You need to identify how much money you bring in on a monthly or quarterly basis. Track all the payments you receive in a spreadsheet or with the appropriate bookkeeping software.

  1. Determine Your Fixed Costs

Rent. Insurance. Internet. Employee salaries. These all refer to fixed costs, as they remain the same every month.

  1. Determine Your Variable Costs

All businesses have extraneous or “one-off” costs associated with them. This might be the new piece of equipment you have to buy or out-of-town training you need to provide for your staff.

  1. Tie It All Together

Once you take into consideration your total income minus your total expenses, you have a general idea of what money remains leftover. Track this throughout several months or years, and you’ll have a reasonable estimate of your average profits.

Use High-Quality Bookkeeping Software

Step one to starting a business? Keeping track of your income flow! Bookkeeping allows you to track your money flow, manage your expenses, and record your deductions.

While bigger businesses may employ full-time accountants to manage this task, anyone can utilize the right software to ensure their books are in order.

The right bookkeeping strategy should allow you to sync up your bank accounts and credit cards. It should also allow you to create an invoicing schedule and create appropriate charts for tax-related purposes.

Popular bookkeeping software includes:

  • Quickbooks Online
  • Freshbooks
  • GoDaddy
  • Wave Review
  • Xero
  • Zoho Books
  • Free Agent
  • OneUp

Of course, you’ll need to spend some time inputting your data and familiarizing yourself with each of these platforms unless you decide to outsource. With that said, having the right technology can dramatically streamline your cash flow.

Separate Business and Personal Accounts

Are you charging everything to the same credit card without thinking twice? Big mistake!

You should focus on opening up a business credit card and bank account as soon as possible, as this separation will allow you to maximize incorporation benefits.

Furthermore, you don’t want to risk getting audited by the IRS and have them determine that you are commingling expenses. This can risk you jeopardizing your deductions. It also makes it harder for you to track the items and services that are business (as opposed to personal).

Furthermore, it’s just easier to keep things separate. It helps you manage your cash flow, especially if you have multiple income streams.

Understand Your Cash Flow

Cash flow problems can be detrimental to businesses with even the best intentions.

Although it may seem like common sense, many potential entrepreneurs struggle with the ‘feast or famine’ philosophy that’s commonplace in business.

First of all, you must understand that revenue and expenses rarely stay constant. This is especially true at the beginning when you are sensitive to startup fees, seasonal needs, and finding the right employees. Entrepreneurship is rarely stable- it tends to ebb and flow with various fluctuations.

For this reason, it’s imperative that you have a substantial cash reserve available to emergencies and pitfalls. Again, this is an area where most businesses fail. Don’t become that statistic.

Accept Mobile Payment Systems

Mobile payment systems can allow quicker, easier payment for services and products. Today, there are many different operating systems available. Most of them allow direct transactions through mobile phones.

Furthermore, you can usually monitor your transactions from the convenience of a smartphone app.

Popular mobile payment systems include:

  • Apple Pay
  • BitPay
  • Data Cash
  • Google Play Send
  • Paypal
  • Square
  • Venmo
  • WePay

Each application has its own rules, requirements, and transaction fees associated with it. Make sure to read through the conditions thoroughly before launching them into your business.

Be Conservative With Big Expenses Early

Even though some business leaders would argue that you need to invest big to make it big, that’s not always the case. In fact, taking on this approach could be catastrophic if you don’t have the capital you need.

Before throwing up a considerable launch event or offering massive salaries, you should consider starting small and with a realistic budget.

This may not sound lavish or fun, but it’s practical. You don’t want to blow it all in the beginning before you have a reasonable cash flow coming in.

Nowadays, many entrepreneurs take advantage of free or low-cost advertising opportunities available through social media. Use Facebook, Pinterest, Twitter, and Instagram to level up your promotion and share your services and products with your target audience.

Once the cash starts rolling in, you can revisit the bigger expenses. Your wallet will thank you.

Create Your Financial Reporting Schedule

If you don’t have a financial or supervisory team, you still need to have a way to track your cash flow. You can do this by establishing routine financial audits. Many professionals schedule either quarterly or biannual profit reports.

Create your deadlines and hold yourself accountable. You want a solid understanding of where your money is going- especially if and when your business is new.

Protect Yourself Legally

Of course, it’s inherently risky to start a new business, and we all know that most companies fail within the first few years. In other words, setbacks and obstacles are inevitable. You will struggle, and that’s okay.

While you can’t anticipate every potential problem, you should be prepared in the event of the worst-case scenario. Make sure that you have optimal business insurance and that you have a lawyer on your side for any contracts or business arrangements.

You should also make sure that you’re keeping your credit score in tip-top shape. If you ever need to bail yourself out of a financial pinch, this will help you.

If you have a family and dependents, it’s crucial that you consider what will happen to the business in the event of something happening to you. A simple DIY will that you draft on your personal computer may not be enough if you have complex business needs. It’s best to consult with an estate attorney.

Automate When Possible

As a business owner, you know how precious time feels. The more you spend wasting your time on daily tasks that you could outsource, the more time you spend away from focusing on what’s important.

For example, let’s say you manage all your invoices or payment scheduling manually. By automating streamlining your payments, you make it simpler to notify and receive payment from your customers.

If you work with several clients or businesses, this becomes even more important. Tracking all the invoices and payments can become overwhelming, time-consuming, and even costly (as you may make auditing mistakes).

Check out this guide on how to start payable automation.

Always Pay Bills on Time

Like you should practice good financial habits in your personal life, you should apply the same principles to your business. Loan payment, overdraft, or credit card fees can add up quickly. Furthermore, many clients or businesses will impose late fees if you don’t make your payments on time.

If you struggle with staying on top of your payments, set up a reminder system. This will help you make sure that bills don’t fall through the cracks.

Yes, the profit-loss margin may be thin, but late fees can make or break your business.

Final Thoughts on Managing Your Business Finances

Tackling your business finances can feel overwhelming and frustrating. However, it’s essential to stay organized and focused if you want your company to succeed now and in the future.

Are you interested in learning more about mastering your business and generating success? Check out more of our blog today!

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