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Guest Post by Susan Guillory
Businesses of every size have one thing in common: they need to constantly monitor their finances to stay in the black. If you’re new to managing business expenses, you may need a little guidance on how to remove this headache from your list.
Here are five simple tips to help you and your business thrive:
Tip 1: Have a budget from day 1 (but don’t be married to it)
Creating a business budget should be one of the first things you do for your company — before you even launch. Make sure to include all your overhead, as well as salaries (including your own)!
But realize that this initial budget will probably need to be tweaked over time as you better understand your recurring (as well as unexpected) expenses. That’s not to say you have permission to go over budget! Instead, keep an eye on your expenses, and if one category starts creeping up month after month, see if it’s possible to reduce that expense, or else increase that budget.
Tip 2: Have a separate checking account
Many new business owners see no issue with lumping their business transactions in with their personal finances, but there are several reasons to have a separate business checking account.
First, it’s easier to organize your accounting. If you use accounting software (spoiler alert for #3), the software will automatically pull the transactions from your account and categorize them. If you use your personal account, you’ll constantly have to remove those entries from your software.
And having a separate account makes it easier to file taxes. If your business expenses are appropriately categorized, it means less work for your accountant. Less work means you spend less money for her services!
Tip 3: Use accounting software
Using accounting software has many benefits beyond making tax filing easier. Most software also allows you to send invoices and even accept payments, which means your clients can pay you effortlessly and quickly.
Accounting software also provides you with valuable reports, like your profit and loss statement. This is a great snapshot of your accounts that you can look at throughout the year to ensure that you’ve got more money coming in than going out.
Some accounting platforms also have a time tracker tool, which is helpful if you bill on an hourly basis. Just start the timer while you work on a client project, and it will automatically tally the time worked multiplied by your hourly rate. When you create an invoice for that client, you can add the billed time with the click of a button.
Tip 4: Consider financing when necessary
Maybe you want to bootstrap your business and take no outside financing. That’s great! But there may come a day when you want to grow your business. Maybe you’d like to open a second location or hire an employee. That’s where financing comes in handy.
You’ve got many options, all targeted to different needs. A business credit card can give you some flexibility in being able to make larger purchases when you don’t necessarily have the cash (just be sure to pay off that balance before interest rates kick in). A small business loan or line of credit can give you access to larger amounts that you need for expansion.
Just have a plan for how you will pay back the financing. And realize that taking out a loan when times are tough isn’t always a smart idea. Sure, it will keep you afloat for a few months, but what happens when you don’t have enough revenue to pay that loan installment?
Tip 5: Hire an accountant
For many small business owners, managing their finances is fairly straightforward and they may not need an accountant year round. But at the very least, working with an accountant to help you with your annual taxes can remove what can be a major stressor for many people.
An accountant is familiar with all tax laws and may be able to make suggestions about how you can reduce your taxable income. You may not have even realized that you could get a little tax break by getting a deduction on your home office space! That’s just one example of the many nifty things an accountant can help with.
And if you’ve got more work that you really don’t want to do on your finances, you can hire an accountant for a set amount of hours or tasks each month. She can send your invoices for you, make sure clients pay on time, and keep your expenses categorized correctly.
You don’t have to be a financial wizard to be smart with your business finances. It’s just a matter of having the right processes and assistance in place and making a habit of regularly monitoring your accounts.
Susan Guillory is the President of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, and Cision. Follow her on Twitter @eggmarketing.