As a small business owner, dealing with the financial side of your company can be one of your biggest challenges. Typically, many entrepreneurs spend lots of time running the day-to-day operations of their business but little time handling the financial side.
However, understanding and managing your company’s finances can have a very positive impact on your company’s success. Here are five basic steps that can help you feel more confident about your company’s finances.
1. Set up bookkeeping/financial reports.
The first thing to do is to set up a system that lets you enter bookkeeping information and financial details. There are many easy-to-use and affordable software programs, such as QuickBooks, that let you enter and categorize your financial data and create accurate reports.
You’ll have access to many helpful financial reports such as profit and loss, revenue, cash flow projections, expenses and balance sheets. These accurately reveal how your business is doing. You can set up and manage the system yourself, or hire a part-time/full-time bookkeeper. By getting monthly/quarterly/yearly reports, you’ll have the knowledge to plan a better future for your business.
2. Stay updated on cash flow.
It’s smart to check your cash flow on a regular basis. The easiest way to do it is as follows:
- Check your bank account balance.
- Print a cash-flow report showing upcoming revenue due in a specific time-period and expenses/payments due during the same time period.
- Make sure your bank account balance and incoming revenue will be higher than the expenses/payments. If not, you may have to adjust the payment timing if possible, or use your line of credit.
3. Review income and expenses.
A key to financial management is to add all the records of the money your company earns and the money it spends to your bookkeeping system. You can then create reports that let you review and understand how much the gross income is reduced by the cost of goods and other expenses. This shows your actual net income and keeps you from viewing income at an inaccurate level.
4. Plan for tax savings.
Another wise thing to do is to talk to your tax accountant, get an overall view of taxes your company will owe, and then plan for ways to reduce taxes. For example, before the end of the tax year you can reduce your tax costs by making additional purchases of items/equipment your business needs, pay some bills ahead of schedule and delay depositing income checks into your bank account until the next year starts. By reducing taxable income, you’ll save money on tax payments.
5. Determine profit percentage.
One other important financial step to take is to know what your true profit percentage is. You can use your bookkeeping software system to create reports that show gross income minus total costs/expenses to see what percent of gross income is your bottom-line profit. Knowing your actual profit percentage can help you plan better for the future, look for higher efficiency to increase profit, and see if your company is meeting its goals.
By following these steps, you’ll know how your company is truly doing, and can manage your business more wisely. Get started today for a better tomorrow!