Being able to always know the financial state of your small business is important to its survival. Running short of money because of insufficient accounting could easily mean the end of your business. Careful monitoring of your finances will enable you to survive and make plans that will help you make it through tough times or grow when the opportunity comes.
Use an Accurate Accounting Method
Business owners can pick and choose how they manage their finances (cash or accrual), but you need to be sure to have one that lets you see the financial state of your business at a glance. It will require constantly updating your records and making sure you enter costs, money received, outstanding bills, and projected costs.
Keeping close track of your finances is made easier if you use accounting software. You can also hire an accountant to take care of your financial records, which would give you more time to do things that only you can do in your business. An accountant can also make sure that the records are accurate and they will help with taxes.
Separate Business Money from Personal Money
You can cause a lot of headaches later if you do not keep your business and personal funds separate – especially when it comes tax time. One easy way to do this is to use a credit card only for business expenses, which may also give you some rewards. This type of card can also raise your credit score if the bills are paid on time.
Develop a Budget
A budget will help you see where money needs to go and also lets you know what extra money is available. This will enable you to understand your cash flow for the month, as well as informing you of cash shortages or profit.
Buy Necessary Items
Once you start seeing a profit, it will be hard to limit yourself to needed expenses. You will want to buy extras, but they should be kept within reason so that you can pay off bills and put some money into savings.
When you expand your business, continue to buy what you need and avoid extravagance until you can afford it and be sure of future income. Grow slowly and avoid large and expensive expansions and debt.
Watch Marketing Expenses
Marketing can be an unnecessary drain on your finances if you are not ensuring that it is targeted properly. Make sure that your marketing expenses are getting a good ROI so that money is not being wasted. Develop one or two marketing methods at a time and then add more once the first ones are bringing in sales.
Prepare for Loans
As your business grows, the day will come when you want to take out a loan to expand. Prepare for that time by improving your business credit score. You may want to get a business account with a credit union, since they typically provide more loans to small businesses. They may also offer fewer fees.
Invest in the Future
Some of your income every month should be saved as an investment in your business. You can use it for business expansion or to grow your business. It can also be used to cover your basic expenses during a downtime so that you do not need to take out a loan for it.