Managing your small business finances is crucial to your company’s success. It’s an ongoing process and one that needs to be well-organized. There are multiple aspects to maintaining finances and ensuring your business has the stability and cash flow it needs to continue and thrive.
Although keeping up with your small business finances can be challenging, it doesn’t have to be. Here are five tips to help you keep your business finances in order so you can make informed decisions about your company’s financial needs for future growth.
1. Have a Credit Line for When You Need It
While you may not currently need a line of credit for your business, you may one day. It is important to maintain good business credit when you’re a small business owner.
Establishing a line of credit can help you have more flexibility with your cash flow and keep your credit score strong for potential loans. While you may never need to use your credit line or obtain a loan, it’s smart to have these options available.
2. Properly Manage Cash Flow
Cash flow is necessary for any business, but without properly managing of your cash flow and you may find yourself struggling to keep money coming in as fast as it’s going out.
To prevent this, sending invoices as soon as possible is essential, ideally shortly after a project or job is completed. Be clear about payment terms, and follow up on any unpaid invoices promptly.
Sending detailed invoices can also ensure your clients have all the information they need to approve and pay the invoice. This reduces the need for additional communication or clarity before the invoice can be paid.
3. Stay on Top of Bookkeeping
Whether your business is small enough that you can handle your own bookkeeping or you need to hire someone, it’s imperative to stay on top of it. Accurately tracking expenses and income is a must for taxes, calculating ROI, and creating a budget.
Bookkeeping also allows you to keep accurate records of your business expenses, which is critical to the day-to-day operations of your business. Organized records also allow you to identify realistic financial goals and opportunities for your business to flourish.
You can also use bookkeeping to keep track of bank and credit card statements, contracts, licenses, and tax paperwork you may need to have on hand.
4. Don’t Mix Personal and Business Finances
When you’re a small business, keeping your personal and business finances separate is essential. Not only will this help protect your personal assets, but it will also make your bookkeeping and accounting more straightforward, not to mention your taxes.
Keeping personal and business finances separate will also make it simpler to track expenses and manage your cash flow. You can keep personal and business separate by having a separate business account, establishing a line of credit in the company’s name, and keeping personal and business receipts separate.
5. Plan and Schedule Tax Payments
It’s important to plan for tax payments as a small business. For many companies, it’s often easier to treat taxes as a regular expense instead of paying them at the end of the year in a lump sum, which means paying estimated taxes quarterly.
You should be setting aside roughly 30% to 40% of your cash flow for taxes, which you can put in a separate savings account until it is time to make your quarterly estimated tax payments.
Scharf Pera & Co., PLLC helps small business owners plan accordingly for taxes so they can minimize their tax bill while still complying with tax regulations. Contact us today to find out how you can better manage your small business finances by properly planning for taxes.