Good financial health is crucial for any small business, and this starts with careful financial management. However, many small business owners feel overwhelmed and continue to put off the task of dealing with their finances. Tempting though it is, this approach will not set your small business for success. It is important to take charge of your finances today to ensure the financial health of your small business for years to come. Good financial management always pays off, so follow these useful tips to strengthen your small business.
- Get to Grips with Financial Statements
Effective money management starts with your financial statements. These are written records of your small business performance and financial activity. Maintaining awareness of your small business’ financial status enables you to make smart decisions and identify any potential problems ahead of time. Here are the most important types of financial statements you need to know about:
- Cash flow statements show how much cash is coming in and out of your company. These reports help you to understand your cash position and identify any issues that need to be addressed. (Most important. Cash is King - No cash, no small business!!)
- Balance sheets are an assessment of your net worth that detail your assets, liabilities, and equity.
- An income statement is a complete picture of your small business’ income and expenses, which is essential to understand whether you are making a profit or a loss.
- Create an Income Tax Plan
Understanding income taxes is vital for the financial health of your small business. Legally, your income tax returns must be submitted on time and your financial statements must be 100% accurate. This sounds daunting, but it is easy with due diligence.
Careful planning can also help you to decrease your income taxes through deductions, and these savings will grow along with your small business. If you feel overwhelmed, it is worth considering whether hiring an accountant (ME) could generate a significant return on investment for your small business.
- Keep a Separate Business Account
The sooner you separate your personal and small business bank accounts, the better. Mixing the two can lead to confusion and income tax trouble. Opening a business account will help keep your finances transparent and save a lot of time and stress later. It is also worth looking into a high-interest business savings account, which can be used to generate equity to invest further down the line. It really does pay to plan.
- Pay Yourself
Small business owners often skip this step during the early days, but it is important to start as you mean to go on. As the small business owner, it is essential for you to maintain good personal finances to avoid ending up in trouble later.
- Cloud-Based Accounting Software
We live in the Digital Age, so use this to your advantage and harness the power of technology to streamline your business practices. Accounting is notoriously time-consuming but cloud-based software is a cost-effective solution that can save you many hours. You will be able to access your accounts 24/7 from any device, allowing you to manage your finances remotely for convenience and peace of mind. This type of software also reduces errors to ensure that your data stays accurate.
Highly recommend QuickBooks Online.
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The benefit of this approach? A consistent and reliable way to measure the profitability of your small business.
- Measure Performance
Keeping a close eye on performance is essential for the success of any small business, so create a regular time slot to do just that. Closely examining your expenses and return on investment (ROI) allows you to make informed choices as you grow your small business. You will be able to cut down on costs that provide little value to your small business and focus on increasing your ROIs.
- Prepare for Income Tax Audits
You need to figure out which income tax audits your small business may receive so that you can adequately prepare for them. It is always wise to maintain accurate financial records to ensure that you are ready for any income tax audit you may face. Learning about different types of income tax audits and the associated selection process can often help you to avoid them, so this really pays off.
Employing these finance tips from the word “go” can help your small business grow and thrive. While it may be tempting to cut corners, it is important to see the bigger picture and think about the long-term financial health of your small business. Adopting good habits early in the game is key to your success.
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This document is for educational purposes only and may not apply to your income tax situation.