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Whether you’re a seasoned entrepreneur or just starting your own venture, one of the best things you can do for your business is organize the financials.
With the right techniques, developing a great strategy for your business finances can help you reduce business costs, project for the future and prepare for tax season.
Here are seven great organization tips you can begin to implement today:
1. Start off on the right financial foot
If you’re in the beginning stages of starting your business, now is the perfect time to set yourself up for long-term financial health.
First, your business plan can act as your roadmap. A traditional business plan often covers everything from in-depth financial figures to your forward-looking plan and financial goals.
You can also look into resources to help you get your business started. Different local, national and private organizations can help you find funding and resources to launch your business.
Nevertheless, you should also make sure you’re financially prepared to dedicate a significant amount of money, especially early on. While amounts can vary greatly depending on your industry, Shopify data shows that business owners with no employees spend about $18,000 in their first year alone.
2. Develop a business budget
Creating a business budget is similar to what you would do for your household. You want to be sure that you are spending within your means and are borrowing to create wealth rather than deplete it. Without a budget, you can feel out of control, overspend and descend into debt.
How much capital do you have now and coming in soon? What are your business’s fixed and variable costs? Do you have funds set aside for future expenses or emergencies? These are just a few of the questions you will need to answer so you can develop a realistic and flexible business budget.
Once you have your business budget, you can create a profit and loss (P&L) or income statement. This is a snapshot of your business’s income and expenses over a fixed time period, such as a quarter or fiscal year. You’ll also need this document if you choose to apply for a business loan.
3. Select the right accounting software
The right tools can make actually maintaining your business budget a lot easier — and save you time when tax season comes around.
There are many accounting software programs on the market, so you’ll want to get the one that matches your industry, needs and financial constraints. Free or very low-cost versions are often available, and if you need more bells and whistles later you can always upgrade.
Almost all of these programs can assist with your cash flow, payroll, invoices, paying vendors on schedule, and preparing you for tax time. You don’t have to hunt down receipts or wonder if you have the cash to pay the bills, since that information will live on your desktop, ready for you any time.
4. Open a business bank account
One of the most important rules of an organization as an entrepreneur or small-business owner is to keep business and personal costs separate.
It’s a good idea to have a deposit account designated for business use only. Not only will it help you remain aware of cash flow, but if your company runs into legal trouble, your personal assets can be protected against lawsuits and audits.
“Figuring out how to separate the expenses tied to your business from your personal finances can take some getting used to,” says Bob Marshall, business growth strategy executive, small business development, for Wells Fargo & Company. “It can also take time to open business accounts and get the systems in place to properly track your business financials. But that separation is important. It can help you determine how healthy your business is, and it makes life much easier around tax time.”
You can even get creative with your accounts to make organizing your finances even easier.
“I have different accounts with the same bank for operating costs, salary, expenditures, taxes,” says Sejal Lakhani-Bhatt, CEO of CloudWerxe and TechWerxe. “That way I know for sure I have the money for them when I need it.”
5. Choose the right business credit cards
As with deposit accounts, don’t fall into the disorganization trap of mixing personal and business credit card transactions. Not only can it needlessly complicate your financial affairs, but consumer cards won’t offer the unique benefits of business credit cards for your spending and organization.
Which business credit card should you choose? That depends on your credit score and what you want out of the account.
Some business credit cards come with free expense management tools. The American Express® Business Gold Card comes with an annual year-end summary, the ability to connect your account to QuickBooks, access to Vendor Pay by Bill.com and more.
If you want to grant certain employees access to the account, get one that doesn’t charge for additional employee cards, like the Ink Business Preferred® Credit Card from Chase. You will have instant access to their transactions, too, so you won’t have to wait for them to submit an expense report.
A business credit card can also help you build your business credit score, which is different than your personal credit. Great business credit is essential for accessing future financing, insurance and more.
6. Make regular reviews a habit
Even with the best systems in place, it can be easy for your financial management to fall aside when you get busy. If that happens, and you wait too long to get back on track, all that hard work you did to organize your business budget can fall into disarray.
Mark your calendar for at least a monthly review of your money, though more often is even better.
Lakhani-Bhatt checks accounts receivable and payable and monthly invoices on a bi-weekly basis, so she can detect any changes that need to be made early. “Quarterly we review projects we want to do, check prices,” she says. “Annually we do a full review of venders, find out if we need new technology.”
Commit to making the review of your own business’s financials a priority, and you can ensure you’re pacing toward your plans, or adjust your budget as needed.
7. If you don’t have time, delegate or hire
Ultimately, you may feel overwhelmed by the demands of keeping your business finances organized. Before that happens, take your temperature.
Are you anxious about whether or not you can pay your vendors and suppliers, or is your credit card bill escalating uncomfortably? Do you think your expenses might be too high but aren’t sure how you can lower them? Are you behind on your quarterly estimated taxes?
Whatever the case, if you can’t handle your business finances on your own, you might find it more useful to delegate to a qualified, trustworthy person in your company or hire an outside professional.
A bookkeeper can assume responsibilities like expense monitoring, bill paying and recording transactions. An accountant can help with longer-term financial advice and taxes. Assess where you’re falling astray to determine the type of help you’ll benefit from most.