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Managing finances is a stress point for many people running a small business. Sadly, about 20% of small businesses fail within the first year. Many of these failures are due to managing business finances poorly.
Avoid this pitfall by reading our list of 10 small business finance tips that can help you stay on the road to success.
1. Track Your Income
If you don't know all the details surrounding your income and expenses, there is no way to successfully manage your finances. The first thing you need to do is determine your small business budget.
You can track this monthly, weekly, or even daily to see how much you make and what your financial cycle looks like. You can use a spreadsheet and break your income and expenses into categories to make it easier to digest.
Or, you can use a program to help you with tracking. If you have a goal in mind, determine the income and expenses you would need to have to hit that goal, and then create an actionable plan to reach it.
2. Invest in Growth
It is an important habit to set money aside for growth opportunities that will help you scale up your business success.
If you are investing in yourself and your business, you should see a return on that money. When opportunities arise, don't be afraid to act on them.
3. Establish Good Financial Habits
Even if it is as simple as having a place for your business receipts, a dedicated time to review and update financial information, or setting all of your bills to auto-pay, these are little habits that add up to big results when done religiously.
When it comes to running a small business, every dollar counts. There should be no surprises in your small business budget.
4. Plan Ahead
There will always be those road bumps that cost more than you would like to spend. A car goes out, a printer is on the fritz, or a supplier can't fill an order you needed to be filled yesterday.
Have emergency savings set aside for these types of things so you aren't caught off-guard and forced to do something like borrow money. The last thing you want to do for your finances is take on debt you don't want or can't afford.
5. Set up Separate Business and Personal Banking Accounts
It is one of the first things any new business owner should do when managing business finances. Co-mingling your money is a sure-fire way to hate yourself during tax time, and it can even be illegal.
It is best to open specific accounts for your business, so you don't have to worry about separating all your cash. Open a business checking account, and short-term savings account to make managing your business funds as easy as possible.
6. Have Good Business Credit
Starting out, you may not need much more than you have, but at some point, you may decide to scale up your business. A business line of credit, or a small business loan, is one way to make this happen. But to be able to get one, you need to have good credit.
Prioritize having a good relationship with your bank and always pay off any debt as soon as possible. Watch out for high-interest rates, and don't take on projects you cant afford.
7. Open a Tax Savings Account
The United States runs on a pay-as-you-go tax system, so you should be paying income taxes to the IRS quarterly as a small business. A simplified way to do this is to have a designated tax savings account you can automatically deposit a set percentage of your income into each time you get paid.
It needs to be enough to cover state and local taxes, as well as self-employment taxes. This way, when you make your quarterly tax payments, it is from money already set aside for the IRS.
8. Set Up a Filing System
Organizing your small business's financial data is a task that many people dread, but it doesn't have to be fancy or complicated. You can choose between a paper or digital filing system.
No matter what you choose, make sure to keep items like bank statements, contracts, permits and licensees, vendor records, tax papers, and any additional bookkeeping records. For paper filing, you can use a classic filing cabinet with drop-in folders.
If you are using a digital system, there are many different apps and services you can choose to use to edit and track your invoices, payments, expenses, and more. This is much easier than the do-it-yourself method of using an excel sheet.
9. Find Mobile Apps that Work
Mobile apps are an easy and accessible way for small business owners to take control of managing business finances. You can choose different apps for organizing and tracking different things, from scheduling to tracking business-related activity.
You can use apps to track your mileage and organize it into different categories. You can also track business expenses. There are so many apps that can help with organizing your finances. Read the reviews and test them out to see which ones offer the most value to you.
10. Protect Your Finances
Going into business for yourself always involves some level of risk. You can minimize that risk by getting the right insurance coverage.
The last thing you want is to watch your hard-earned money disappear due to a lawsuit you could have had insurance coverage for. Depending on the structure of your business and the insurance you purchase, you can completely separate your finances from your business finances and have multiple layers of protection.
Use These Small Business Finance Tips to Scale Up
Running a small business is something to be proud of. We hope you use these small business finance tips to stay on top of your important to-dos and watch your revenue grow!
Check our blog to find more finance tips for small business owners and many other articles to keep you educated and entertained.
