If there’s one important aspect that you need to learn to make sure your small business stays afloat, it would have to be financial management. There’s a lot that goes into a business than just selling products or offering services. For one, if you’re not making money out of it, then your business ventures will look more like a hobby. That’s why as early as right now, you need to learn how to organize your small business expenses correctly.
Proper finance management and organization is crucial as it contributes greatly towards the success of your small business. In addition, it will also guarantee that you’re hitting your profit goals. Similar to your personal finance, there are many ways that you can do to organize your small business finances. However, it will all depend on goals.
To help you out, we’ve prepared five important steps to help you get started:
Step #1: Track and Record Your Income
When doing business, it’s always essential to know how much money your business is making. You can track your income quarterly, monthly, weekly, or even daily determine the amount of money that your business is bringing in in a particular period.
You can use a spreadsheet to track your income and break it down into different categories. Each category should represent different streams of income coming into your business.
If you’re using accounting or invoicing software, you can use a feature that will track your business income. When you keep track of your income, you will be able to monitor your entire business better. At the same time, you can also determine how the numbers go up and down. Also, having an income goal in mind will require you to start tracking your income regularly.
Step #2: Audit Your Expenses
You’re going to track your income anyway; so, you might as well track your expenses while you’re doing it. These are two aspects of your business that you need to pay close attention to at all times. Seasoned entrepreneurs know that they have essential expenses to pay to keep their business operations running. So, take a page from their book and do the same thing.
Consider deducting a portion of your business expenses on your taxes to lower your taxable income. As a result, it can lower the amount of money that you will earn. That’s the reason why most business owners net a much lower income compared to what they gross.
Track your expenses in the same manner as tracking your income. It will allow you to audit your expenses regularly so that you can guarantee that you’re not spending too much on any unnecessary costs. In return, you can allocate any extra budget to other important aspects of your business.
Step #3: Have a Business Bank Account
A golden rule about doing business is that you should always have a separate bank account for it. As soon as your business starts generating money, you need to separate it from your personal finances. Having a separate bank account will ensure that you’re not crossing any borders and ruining your budget.
Sure, you can get away with keeping all of your personal and business finances in one bank account during your first few years. But when your business starts to grow, you need to create a separate bank account for it. If not, you’ll encounter many problems like confusion around your tax time. At the same time, everything will be unorganized, and take you some time to get things bank on track.
Avoid any of these problems by simply separating your personal and business expenses. You can do so by getting a separate bank account for your business. If you have an Employee Identification Number (EIN), you can open a business bank account or a separate personal account that you can treat like a business account.
Once you’ve set up a bank account for your business, you can start filtering through that account and pay all your expenses from it. You will receive a statement every month, making it easier for you to keep track of your expenses and cash flow.
Step #4: Safeguard Your Business
Keep in mind that every type of business needs a certain level of protection. However, not matter what business you’re running, you should always consider getting some insurance. At the same time, you should also establish your business as either an S-Corp or an LLC. By doing so, you will separate your business identity and finance from your personal finances.
Let’s have an example:
Suppose you had to go through a legal issue. By establishing your business as either an S-Corp or LLC, your personal assets and property would not be liable. Just make sure that you renew any important certifications or licenses that you need to remain compliant. You can do so by adding it to your calendar.
Remember, protecting your business is the undisputed best way to ensure that all of your financial issues that may negatively affect your business don’t affect your personal assets.
Step #5: Choose Your Ideal Payment Options
When it comes to receiving payments into your business bank account, you would want to make it a smooth and hassle-free process. To do that, you need to determine how you will accept payments. The choice that you make will depend on the overall function of your business.
If you’re offering services, you should consider sending regular invoices to your clients. On the other hand, if you’re selling products, you should consider accepting card payments – both credit and debit. You can also consider setting up an online cart for your website. Whatever you plan on doing, just make sure that you compare various payment options available and consider how much the fees will affect the overall process. That way, you will eventually find the right payment solution for you.
When it comes to organizing your small business expenses, you can expect anxiety and fear to be part of the mix. However, with the right process in mind, you can overcome these hurdles and keep your business running now and for the foreseeable future. Always keep in mind the essential points that we discuss in this article. Follow each step, and when you’ve reached the final phase, you’ll be able to organize your expenses like an expert.
Ossian Rey Muscad is a Digital Marketer that loves to write about small business tips, finances and marketing articles to ReliaBills. Certified Otaku and animal lover.