Stay On Top Of Your Business Finances
No business can be run effectively without a keen understanding of your finances. It’s as simple as that. From how you use your money to how you track it, if you don’t stay on top of your finances, it’s easy for costs to grow without your knowing, for errors to be made, and for debts to grow. Here, we’re going to look at steps you can take to make it much easier to manage your finances and the duties you need to ensure you fulfill.
Manage your accounting in one place
Being able to track different aspects of your finances, such as overheads, expenses, accounts payable, separately is useful. However, if you’re trying to track and update multiple different excel sheets or (even worse) multiple physical books, it can quickly get overwhelming and numbers can start to slip through the cracks. Centralizing all your finances within a single accounting software package can make it much easier to manage over time. What’s more, accounting software can help you quickly generate reports and insights that can greatly factor into your decision making, including some cases we will look at a little further later.
Stay on top of invoicing
If your business receives income primarily in the form of invoices from your customers and clients, then it can’t be underestimated how important it is to foster prompt payment. One or two late invoices may be more of an annoyance than a threat, but if it becomes a trend, you could be forced to rely on expensive credit a lot more often while you wait for money that’s rightfully yours. Invoice tracking systems can help you see when invoices have been sent off, when payment is due, and show you when to get in touch to give a firm, but polite reminder. Don’t neglect to include the payment due date in the initial contract with a client and a late fee. Don’t negotiate when it comes to those late fees, either, you have to set a standard so they’re less likely to run late with payments in future, too.
Check every purchase
Keeping on top of your accounts payable is just as important. Particularly, you need to verify every purchase you make to ensure that you’re not spending money when you don’t need to. This is a prevalent problem when dealing with vendors and service providers who can occasionally send erroneous or even fraudulent invoices. You can automate invoice matching to ensure that the details of payment are consistent between your order confirmation, the invoice itself, and any receipts or reports you receive after having paid. This can help quickly highlight discrepancies that you can clear up to make sure you’re not consistently paying more than you should be.
Track those expenses
Keeping on top of overheads is relatively easy and by verifying invoices, you can ensure you always know how much you’re paying. However, you should stay on top of those impromptu purchases on the business expense card, too. Whether it’s in meeting with clients, traveling, or simply buying business resources on the fly, if you don’t pay close attention to the expenses being used by you and your team, they can quickly grow out of proportion. Using expense tracking software and making it mandatory amongst all members of the team can help you see everyone’s spending habits (including your own) as well as highlight discrepancies between the expense reports, account activity, and what the software is telling you.
Review costs regularly
With the tips above, you should have a much better idea of where your money is going consistently. Trimming the fat off your business can help you ensure you’re making the best use of your money and getting rid of needless spending. Twice a year (or more), take a day to lay out all the figures and see where, exactly, you are spending your money. This can help you quickly see where you need to cut costs or to encourage you to find more cost-effective solutions for services and utilities you need but believe you are paying too much for or, at the very least, to negotiate for a better deal.
Project and plan
You shouldn’t be content with only seeing where your finances are currently and having accurate reports to reflect on. You should be just as concerned with where those finances are going, too. You don’t need to be psychic to create financial projections, however. You simply need to look at the trends of what you’re making and what you’re spending. A cost and return on investment analysis can help you project growth if, for instance, you are scaling the business as well. The help of an accountant can be particularly helpful in seeing the ROI of business decisions, so don’t feel like you have to go through it alone. Without projections, it can become a lot harder to make investment decisions, as you’re never quite sure on how much money you’re going to have in future.
Know how much funding you need
Which brings us to our next point. Before you start making any grand plans, whether it’s starting a business or scaling it, you should have a good idea of the costs in advance. For one, you don’t want to overspend by having a poorly weighted budget. Secondly, if you’re looking for funding, then your potential investors or creditors are going to want a detailed account of how much you need, where it’s going to be spent, and how you intend to pay it back. Learn how to estimate your costs as part of your business plan and stick to those plans as best as possible, always keeping your budget in mind.
Keep paper out of the picture
This is a tip that’s not only going to save you a lot of time but make it much easier to organize all your financial records. Printing records of financial details and creating a filing system for invoices, receipts and the like is always a wise idea. They can serve as a valuable backup for your data. However, you should avoid doing the actual bookkeeping on paper as much as possible. There’s a greater risk of losing paper files as opposed to digital files which can be easily copied and uploaded to the Cloud. Doing your bookkeeping without the help of an automating app can increase the risk of mistakes being made, too. What’s more, in making the office a paperless place, you’re creating an eco-friendlier business.
Separate the business and the personal
It’s not just a tip that applies to not getting to emotionally invested in business decisions, it’s a mantra that applies to your finances as well. Having your business and personal finances tied up together makes you vulnerable to a number of risks. First of all, when it comes to tax season, it can be much harder to untangle the records in your bank account, showing which are business-related and which aren’t. There’s also the fact that you simply increase the risk that you dip into the pot accidentally. Spending your own funds on business expenses can put you at personal risk of debt, while accidentally spending money that belongs to the business can undermine your plans for investments or force you to miss payments to vendors and service providers.
Pay yourself first
That said, don’t forget to pay yourself out of the money you’re making. Even if you’re a single freelancer and you are technically the only person you are responsible to, it’s a wise move to decide on a salary for yourself and pay yourself on time regardless of what happens. Failing to consistently pay yourself can put a significant strain on your personal life, which can impact your business decisions. Working for free for too long can cause you to fall out of love with your work, entirely. What’s more, there may be tax breaks you can take advantage of if you create a personal salary out of the total business income.
Fear the taxman
Taxes don’t have to be terrible, but it pays to always be wary of the risks of getting them wrong. Failing to keep up with your accounts, not paying attention to what you can deduct, and not working all-year to keep yourself tax ready can leave you at a greater risk of paying more than you should or, even worse, facing an audit. Even if you’re found to do no wrong, an audit can waste a lot of the time better spent on the business. It’s always recommended that you hire a tax accountant to help you navigate your accounts and create a strategy that minimizes your tax bill while ensuring there are no red flags that could lead to an audit.
Getting on top of your finances when running a business, especially when first starting out, can seem like an overwhelming task. However, if you put in the work now and get in place the systems you need, it becomes much easier than implementing them later and trying to play catch-up. Get on top now to stay on top well into the future.
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