Making money is the whole point of running a business. However, managing that money is often not quite as exciting for business owners and entrepreneurs. It is crucial for a healthy, growing business, however, and keeping track of what is happening with regards to your income and expenditure is something that every conscientious business owner needs to do. It may feel daunting, after all, making a mistake with money can be a devastating thing for a business, but by taking your time and understanding how to manage your money, you will be able to make a good start.
Have Separate Accounts
If you run a small business (and especially if you are its only employee), it can be tempting to make things easier for yourself by using one checking account for both your personal and business transactions. Easier isn’t what this usually turns out to be, however. In fact, it can make things extremely complicated and when things are complicated in business big (and costly) errors can readily occur. These errors cause problems with your profits and income and can even get you into some serious trouble with the IRS. You should always have a separate account for your personal and business finances, and you should do the same with credit cards too. That way you can easily differentiate between what you bought for work and what you bought for yourself. Plus it means you won’t overspend on the company’s cash. Transfer your monthly salary into a new account each time and leave the rest where it is for business expenditure.
Make Finance A Regular Task
The longer you leave your financial tasks, the harder it will all become until it feels impossible to do. Put aside some time each week to work on your finances. It doesn’t have to take hours, but making it a regular task will ensure that you have it in your mind if nothing else. Sorting through receipts, entering invoices online, looking at canceled checks, logging mileage and fuel, and anything else that needs to go through the books must be done. It can often seem as though you need to do other things first, and there is always something else that is more of a priority, which can mean that your finances get missed out. Make it the first thing you do on a Monday morning, for example, and you can soon get into the habit. Another bonus of doing this is that when it comes time to pay your taxes you won’t have to get stressed out about looking for receipts and information – it will all be there, ready to go.
Look At Your Labor Costs
Labor costs are usually your highest outgoing, so you should use those as a basis for everything else. Remember that labor isn’t just about knowing how much each employee gets in their pay packets each month or week; you may need to factor in overtime and benefits too as they can make a big difference to how much you’re spending. Ignoring those costs can put all of your other calculations out completely. Once you know what your labor costs are, you can ensure that you are charging your customers the right amount of money to make a profit.
Make Sure You Get Paid
Doing the work and sending out an invoice is great; it all goes down in your accounts. What’s not so great is when the people you have sent those invoices to aren’t paying. It does happen in business, and it can happen for many different reasons. The important thing is to be aware of the fact that there are outstanding bills. If you don’t know that you are owed money, you can’t then chase after it, and that can mean that eventually it has to be written off entirely, and this can have a major negative impact on your bottom line. One way to ensure that your cash flow is not jeopardized is to consider factoring. When you factor your accounts, you outsource them to an external company. That company pays you what you are owed (and usually takes a small percentage) and then they are the ones who deal with having to chase the money. You don’t have to worry about it. There are even companies that specialize in certain sectors such as Comfreight Haul Pay so getting in touch with a factoring company could be ideal for you if you don’t have the time or inclination to keep requesting payment.
Make Sure You Pay
As well as monitoring the money that comes in, you’ll need to keep a good eye on the money that goes out too. It can be all too easy to file incoming invoices away because they aren’t due for 30 days and then forget all about them. Before you know it, you’ve got a stack of overdue payments to deal with that you can’t afford to pay all at once. If you had paid them as they became due, your cash flow would have been much more secure. As well as having a problem with payment, you might also have a problem with future supplies. A supplier that has been burned once by a late payment could well impose stricter terms on your next order or even ask for payment in advance, assuming they even want to deal with you at all. In business it is important to maintain close relationships with suppliers, and not paying them what they are owed when the payment is due is not a good way to do that.
Don’t Forget Your Deductibles
Understanding your finances is important because you might find that you can save a lot of money when it comes to your taxes. Knowing what can be deducted and what can’t gives you a true picture of your profits before and after tax. This is essential knowledge to have in tax season, of course, because it means you can potentially reduce what you owe to the IRS (legally, of course). It is also useful when it comes to asking for investment from third parties. Being able to show your chart of accounts means being able to show how confident you can be about current profits and future expenditure.