Keeping your finances at the forefront of your mind while running a business can prove to be quite a task. Especially when it is something that you’re not interested or well-versed in. But if you’re unable to afford to hire a bookkeeper or accountant it will be very beneficial to keep these things in mind so that your income and expenses can be accounted for. Also, so you know if your business is profitable (lots of sales doesn’t necessarily mean profit). And when you decide to grow your business this will help when you actually can afford an accountant.
- DON’T MIX BUSINESS WITH PLEASURE
This is a rule as old as time. Not only does it make it more difficult to get an accurate profit or loss figure, it just makes your financial books look messy and unfavorable to banks and investors. Here are the best ways to adhere to this rule
- OPEN UP A BUSINESS ACCOUNT:
When you open a business account, this allows for a direct separation between your personal accounts and your business accounts. Ensure to run every dime that enters and leaves your business through your bank account, when you receive a payment and when you make a payment. If a client pays an invoice deposit it to the account even if you have an expense to pay and have to withdraw it right back. This provides an actual paper trail for the income you claim you are generating. You will need this should you decide to debt finance your business or even bring on investors. Any concerned party will want to see your cash flows.
- PAY YOURSELF A SALARY
If you have no other form of income and you are now contemplating what amount to pay yourself here are some things to consider. Pay yourself a salary that you can actually live off. Do not under or overpay yourself. A general rule of thumb would be to pay yourself how much you would have to pay another person for having to do the exact same job. If you underpay yourself, you may find yourself using your company’s finances. If you overpay yourself, you may find that you’re unable to keep up with the amount in the event that business is slow. This will cause problems for your cash flow.
- KEEP RECORD OF EVERY TRANSACTION
You may not be keeping a definite record of your expenses and income, but you should keep every receipt for expenses paid or income generated. This can be physical or digital. Take a photo of the receipts if you need to. You can use a carbon receipt book or make an invoice on Microsoft Word. You may also choose to get a customized receipt book. Another option would be to sign up for a service such as QuickBooks. This will help you keep record of all of your transactions, it can also help with invoicing and providing receipts to your clients. The main thing is to just keep copies of your transactions. When you are able to afford an accountant or you are required to contract one this will make their job much easier (saving you money) and provide you more accurate figures.
- LEARN BASIC BUSINESS EDUCATION
When you decide to start your small business as an entrepreneur, you’re more than likely a ‘one-man band’. Whether you’re offering services or selling a product you’re in charge of your business’ sales, operations, marketing, and finances. It will be in your best interest to gain some knowledge on each of the hats you’ll be having to wear. This will not only benefit your business by generating sales, operating smoothly or your accounting; but when your business expands and you’re able to hire or contract professionals, when their explaining something you will have a better understanding and appreciation for what they are saying.
Running a business is no small feat. You have taken this risk, taking this advice can only benefit your business. Poor financial management can ruin your business, 82% of business failures are due to poor cash management.