Tips for Keeping Up with Small Business Finances
Keeping accurate financial books is one of the least enjoyed tasks that entrepreneurs face. Yet, money is the lifeblood of every small business. Failing to keep track of the money causes many small businesses to go under.
A good place to start organizing your finances is by keeping personal and trade finances completely separate. Doing so makes calculating taxes easier as well as keeping accurate track of tax-deductible expenses.
Categorizing Business Finances
The next step of getting organized is creating five major categories for your business finances.
- Forecasted income
- Actual income
- Fixed costs
- Variable costs
Depending on your specific business, you’ll have several subcategories such as travel expenses, entertainment, materials and others. By being diligent, the average entrepreneur can keep accurate finances in about 30 minutes each week.
Tips for Staying On Top of Business Finances
Keeping accurate finances is as easy as:
- Consider the best business structure for your business. The most common business entity for entrepreneurs is a limited liability company (LLC).
- Calculate taxes owed each month. Maintain taxes in a separate account even if you don’t pay them on a monthly basis.
- Carefully consider all businesses investments. Every investment should have both a short term and long term benefit to the business. Some expenses are a necessity just to doing business. Other investments should only be made when it directly helps you grow your business or improves the quality of your product/service. If it does neither, avoid spending the money.
- Start your workweek with a quick review of your business finances. Estimate cash that will be coming in for the week and what will be going out. It’s only by keeping close track of income and spending that keeps you informed if your business is profitable or losing money.
- Labour costs are a major cost for many businesses. Keep accurate labour cost recorders. Pay particular attention to employee benefits and overtime. Properly managing those two elements can make the difference between staying in business or going under.
- From the very beginning, put in place an organized method of keeping track of expenses. Specifically, a way of storing receipts. Many business expenses are tax deductible but only if you have proof of the exact cost.
- Understand your variable and fixed costs. Your fixed costs are things like rent for your shop and vehicle leases. They remain constant each month and are the easiest to calculate. Variable costs are usually directly tied to creating and delivering your product or service. Examples are temporary labour and shipping. For a manufacturer, it would include the cost of materials.
- Run a lean business. Always be on the lookout for places to cut costs and increase profit.