Managing your small business finances can be a daunting prospect. After all, there's a good chance that you never had to worry about things like business deductions and company loans before. If this is your first entrepreneurial experience, you've got a lot to learn if you want to make sure that you keep cash flow running smoothly.
The good news is that managing your small business finances can be a lot like handling your personal finances in places.
For instance, you'll need to know how to budget, how to make sure you get the right loans, and so on. Here are the personal finance rules you can apply to your small business strategy.
1. Choose the Right Business Loans
You're going to need some form of credit to support your business at one point or another. For some business leaders, the loan will be for when you first start your new company.
For others, you might find yourself seeking out loans when you start to suffer from problems with cash flow. Getting a loan isn't a bad thing, but it's important to make sure that you don't end up regretting your decision.
Take some time to check out what's available from your credit providers, whether they require personal guarantees, and make sure that you're getting the best possible interest rates. Additionally, make sure that you're borrowing the amount that you need by doing some careful analysis before you apply for money.
The last thing you want is to borrow too little. But on the flip side, borrowing too much and not putting the money to good use whilst all the while being lumbered with high monthly repayments can also be disastrous for your business.
2. Track "Actual" Cash Flow
Tracking your money is something that you'll need to get used to when you're running a small business. On the one hand, you have your invoices to let you know how much money you're going to have coming in.
However, this won't necessarily tell you how much cash you've got to spend. Tracking your actual cash flow will make it easier to see how successful your business is being each month.
Once you know how much money you have coming in and going out on a regular basis, you'll find that it's much easier to determine when you can afford to invest in new opportunities. You'll also be able to see which of your clients are the most problematic when it comes to invoicing.
3. Learn How to Budget
As your business grows, you'll find that you need to become increasingly efficient at dealing with money. The good news is that there are plenty of tools out there that can help with things like tracking your expenses and keeping your accounts in check. However, few tools are more important than your standard business budget.
Failing to create a budget that's realistic can make it incredibly difficult to run a successful business. Take some time to sit down and look at your accounts from the business over the last couple of months.
This will give you an insight into the incoming and outgoing expenses for your company. From there, you can decide how money should be distributed among investments, materials, employees, and so on.
4. Prepare for the Future
One thing that people need to do in both their personal lives and their business is make sure that they're prepared for the future. Just as you have an emergency fund in your personal bank account that helps you to deal with unexpected problems, it helps to have one available for your business too.
This money will come in handy when money gets tight, or you need to pay for something you forgot about - like accounting fees.
While you're preparing yourself for the future with an emergency fund, think about things like retirement too. You're your own boss, which means that no-one else is paying towards a pension for you. If you don't make sure that you have some money in your bank account for the future, then nobody else will.
5. Be Cautious with Taxes
In your day-to-day life, tracking your spending is a simple way to make sure that you're not going over your budget. In the business world, tracking your spending is a necessity to deal with your taxes at the end of each year.
You'll need to ensure that you have accurate and meticulous records that you can send to your accountant and the IRS. If bookkeeping isn't something that you feel comfortable with, then the best thing you can do is hire a professional.
Plan for tax season by stashing about 35% of everything that you make and ensuring that you don't touch it. There's a good chance that your tax bill will be lower than this, but it's better to be safe than sorry.