Managing Your Small Business Financials: 3 Key Tips
Managing your small business financials isn't a skill you can put off acquiring until the time is "right." Too many enterprises flounder when the owner focuses his or her attention on other things, because company financials aren't especially exciting to contemplate. On the contrary, aside from coming up with a great product or service and then hiring the right individuals to help you realize your vision, getting finances in order is a top priority.
Here are three critical action steps to consider when managing your small business financials:
1. Keep your business and personal finances separate
At first blush, it seems far more convenient to occasionally pay for personal expenditures by using your business credit card — after all, you fully intend to pay back the business, right? In fact, such behavior can quickly blossom into an accounting nightmare. If you're managing your accounting processes yourself, it's easy to get lost in what was spent where, for what purpose, etc. If you've hired an outside bookkeeper to handle your finances, and he or she must spend time isolating personal expenses from business spending, their extra time is yet another expense you must deal with later on. Instead, adhere to these time-proven methods for separating business and personal finances:
Create a separate legal entity. Determine how your small business should be structured (sole proprietorship, partnership, limited liability company, corporation), establish it as a separate legal entity and then associate your business finances with that entity. Seek assistance from an accountant or lawyer if you have questions as to how to go about it.
Open a separate business account. A dedicated checking account and a separate business card will go a long way toward helping you maintain the proper separation between business and personal finances.
Don't conduct financial transactions that blur the line between business and personal assets. Momentary convenience doesn't justify blurring the lines between, for example, conducting a business-related real estate transaction in your own name rather than in the name of your company. If you're in doubt about a specific transaction, talk to a lawyer or accountant.
2. Look for smart ways to cut costs
For any small business — but especially startups consistently short on cash — finding ways to cut expenses is absolutely necessary. Paying for all the anticipated (and unanticipated) expenses involved in running a business can quickly leave an entrepreneur cash-strapped and anxious. To offset this likely possibility, keep these cost-cutting tips in mind:
Look at various financing options. Most small businesses find themselves needing to borrow money at some point, but choosing the wrong type of financing can only add to your financial woes. Many of the traditional financing options can work - regular or alternative business loans, a line of credit, equipment and/or invoice financing — if you take time to compare and contrast what they have to offer. Identify solutions where capital works for you, not against you.
Renegotiate vendor contracts. Many vendors are flexible when it comes to renegotiating contracts for a better rate, especially if you have a proven track record of paying your bills on time. Talk to them about discounting their fees if you agree to a long-term contract or pay annually rather than monthly.
Stay on top of inventory. An inventory-based business works best if it avoids keeping more supplies on hand than needed at any given time. Track inventory closely (tracking software is a good tool for this practice) and buy only what you need or know for certain you're about to need.
Share office space. Don't pay extra for "prestigious" office space located in an ultra-desirable neighborhood or with a spacious (but unnecessary) view. Instead, consult with other business owners about sharing office space to minimize overhead costs. In the right circumstances, everyone comes out a winner.
3. Invest in cloud accounting software
Your business is already in the cloud, even if you don't know it. Increasingly, email servers and business sites operate as cloud-based systems. Maintaining your finances in the cloud means not having to pay for maintaining a computer system or technical support. Here are other money-saving aspects of cloud accounting software to consider:
Reduced or eliminated expenses connected with technology and data storage. With a cloud accounting system, data can be backed up every night in a secure, offsite location.
No need to worry about ongoing technical updates. Many cloud systems include automated updates in their basic services, so you don't have to buy software updates when they inevitably occur.
Multiple users facilitate a more efficient workflow. In general, cloud accounting systems are designed to accommodate multiple users (from expert accountants to employees updating expense records when they are out of the office). And, of course, being in the cloud means you can access business data from the office, a client's place of business, when you or your employees are working from home, etc. All these features enhance workflow and reduce unnecessary expenses connected with waiting to input key data.
Business owners who explore creative cost-cutting solutions and pay attention to details can find themselves operating on a much more comfortable cash-flow process than competitors worrying about where money for their next payment is coming from.