The primary reason that small businesses fail is inconsistent or insufficient cash flow. You can’t always prevent issues with cash flow, but you can implement financial management to reduce your risk.
Managing small business finances is a complicated but essential task. If you are launching a new business or want to keep your current business afloat, you need this guide.
Keep reading to learn how to manage small business finances.
Separate Business and Personal Finances
To manage small business finances, you need to separate business funds from your personal stash.
Business owners that use their personal credit cards to cover business expenses or those who deposit revenue into their personal accounts will be faced with serious complications.
The IRS allows business owners to deduct business-related expenses with proper documentation to support those deductions.
Without a record that shows which transactions are business-related versus personal, you lose out on potential savings. Open a business bank account to avoid these issues.
Understand Financial Documents
Small business financial statements provide insight into the financial health of your company. There are three basic financial documents to understand as a business owner:
- Balance sheet
- Profit and loss statement
- Cash flow statement
A balance sheet can help you determine whether or not your business can pay the bills, purchase more assets, or take out loans.
A profit and loss statement, or income statement, details business revenue and expenses. These statements cover profit and loss over a month, quarter, or year.
Cash flow statements show the cash that moved in and out of the business. Analyzing this statement shows how much money you have to pay bills and grow.
Hire Bookkeeping Services
If you struggle with managing business finances, accounting software can streamline the process. Even better, hiring bookkeepers to do the job for you is ideal.
An outside service can look at your cash flow management without bias. They’ll help you craft a business plan that pertains to finance management.
Key Capital offers comprehensive bookkeeping on a monthly basis to keep your affairs in order. If you only need help with one financial aspect, a la carte packages are available as well.
Plan for Business Taxes
Tax planning is something that a business should do in advance. Every business has to pay federal income taxes on their income.
Your tax rate and how you pay for those taxes depend on the business entity you choose. A lot of business owners open a Limited Liability Company (LLC) to avoid double taxation.
Make a habit of setting aside some of your business income each month or quarterly so that you have enough cash available to cover estimated tax payments.
Get Your Small Business Finances in Order
Managing small business finances from day one of opening your company is helpful for long-term management.
To keep your finances in order, open a business bank account, understand the necessary financial documents, hire bookkeeping services, and plan for taxation ahead of time.