Going into business for yourself is no small feat. There will always be a very long to-do list and you will find yourself continually wearing many different hats. Your business can quickly become more of a hobby if you are not making money, so getting your finances in order is crucial.
Properly managing your business finances will ultimately lead to the success of your business and ensure that you hit your financial goals. Just as with personal finances, there are plenty of ways that you can organize your business finances.
Here are six steps to help you get organized.
1. Setup a business bank account
From the moment your business starts making money you need to ensure that your personal and business finances are separate. Doing so makes it easier come tax time and helps you keep your finances nice and organized.
If you have an EIN, you can open up a business bank account, or you can just open a separate personal bank account and treat it just as you would a business account. All income should be filtered through your business account, and all expenses should be paid through that account as well. This way each month you will receive a bank statement which will make it easier for you to track your cash flow.
This leads to the next point of tracking your income!
2. Track your income
It is essential to know how much you make whether that be daily, monthly or even weekly, so you can better understand how much money you are bringing in. This will allow you to budget more accurately.
While many small business owners still keep track of their finances by using a spreadsheet, it would save you time and money to use an invoicing or bookkeeping software. This takes the hassle out of having to make any complicated calculations yourself and will help to ensure that your finances are being monitored correctly.
Most bookkeeping software provides you the ability to monitor your income and view income flow changes over time. You would be able to see how your numbers fluctuate day-over-day, month-over-month or year-over-year. You will be able to set specific income goals based on the information provided.
3. Track and review expenses
Along with tracking your income, it is also important to monitor your expenses as well. As a business owner, you will have essential expenses, such as payroll, that will need to be paid to ensure your business stays up and running. Not only will tracking your expenses help you better manage your finances, but some business expenses can be deducted on your taxes which will lower your taxable income. As a result, your business can net a lower income than what it grosses.
Just as with tracking your income, you can track and review your expenses through bookkeeping software. This is a great way to ensure that you are not overspending on unnecessary costs and will help you budget for the future.
4. Decide how you’ll receive payments
Financial transactions are an important aspect of a business so you will want to decide how your business will receive payments. Be sure to focus on a process that makes receiving payments smooth and easy for both you and your customer.
Your payment options will depend on what type of business you have. For example, if you have a business that provides a service, you may want to send out invoices. Investing in an automated invoicing software will save time and money and help you ensure you are paid promptly.
If you sell products, then you may want to consider accepting credit card payments at your place of business or set up a payment option online for your website.
5. Digitize all records
Dealing with paper records can quickly become unorganized and overwhelming for any business owner. It is important to try and digitize as many financial records for your business to help you stay organized and ensure that you can quickly access your financial documents. Once you have saved your documents digitally, it is best to invest in a secure third-party service to ensure that they are protected. This is an important step to guarantee the security of your business information as well as your customer’s information.
Some business owners still prefer to keep hard copies on hand. If you are one of those individuals, then you will want to be sure that you keep your documents organized in a filing cabinet. Here is just one way that you can organize your documents for easier access:
- Employee Records
- Bank Records
- Accounting Records
- Trademark Applications & Patents
- Licenses & Permits
6. Schedule money meetings
It is essential to schedule times throughout the year to sit down and go over your business finances. Your income and expenses will constantly fluctuate, so it is best to stay informed by checking over your finances at least once a week. This will help you ensure that you stay as organized as possible and avoid potentially falling behind on things.
If you follow the above-mentioned steps, you will be on track to better organize your small business finances. Don’t forget about other important steps such as creating a business budget, contributing to a SEP IRA or Roth IRA for retirement, or even consider hiring an accountant or tax professional to help you keep organized.