Opening your own business is exciting and scary. You have a never-ending list of things you have to get done and may find you have to wear many different hats to make things happen. If you are not making money, your business is not really a business; it is just a hobby.
However, when you effectively manage and organize your small business finances, you can help set a path to success and ensure you are hitting your profit goals. Like personal finance, there are many ways to get your small business finances organized, depending on your goals. Along with understanding finance related terms, such as ASC 606, it is also necessary to take steps to get and stay organized and on top of things. Keep reading to learn more.
Keep Track of Your Income
You need to know how much your business makes. You can track the income you earn daily, weekly, or monthly, which will give you a better understanding of the amount of money you bring in. Consider using a spreadsheet to track your income and break it down into categories, which will represent all the income streams coming into your business.
If you use bookkeeping or invoicing software, you can also use programs to track your total business income. Another advantage offered by tracking your income is that you can monitor things to see how the numbers fluctuate. If you have set income goals, you need to begin tracking your income on an ongoing basis.
Monitor and Audie Your Business Expenses
If you plan to track your income, you should be tracking your expenses, too. As an entrepreneur, you will have essential expenses that have to be paid to ensure your business stays afloat. It is possible to deduct some business expenses on your tax return, which will reduce your total taxable income. It can also reduce the amount of money you earn. Because of this, many business owners have a much lower income than what they gross.
It is possible to track your expenses the same way you do your income. By doing this, you can audit what you are spending regularly and ensure you are not overspending on any unneeded or unnecessary costs.
Maintain a Separate Business Bank Account
When your business begins making money, you need to take steps to keep your business and personal finances separate. If you do keep all funds in the same account, you will likely regret it. When tax time rolls around, you may be confused about what is business and what is personal. You may spend hours or days trying to figure out what is what. That's why taking some of the financial literacy programs out there can be crucial for your personal as well as business finances.
It is possible to avoid these issues by opening a separate bank account for your business. If you have established an EIN, it is possible to open a business bank account, open a separate personal account and then treat it like a business account.
Ensure you let your income filter through the established business account and then pay all related business expenses from that account. Every month, you will get a statement, which will make it much easier to track your incoming cash and what you have on hand.
Take Steps to Protect Your Business
Every business requires some type of protection; however, you should consider purchasing insurance or even establishing an S-Corp or LLC. By establishing this business set-up, you can separate the business finances and identity from your personal financial situation.
For example, if you ever face legal issues, your assets and personal property are not liable. Make sure you renew any necessary licenses and certifications to stay compliant. Protecting your business is a good way to make sure that any financial issues you face do not pour into your personal asset situation.
Consider the Way You Will Take Payments
Make receiving payments an easy and smooth process. To do this, you must determine how you will make money. Making this decision is dependent on how your business operates. If you offer a service, it may be necessary to send out invoices regularly. If you sell a product, you could accept credit cards at your physical location or create an online cart option on your website.
It is good to compare the available options and find out how much the fees will be to find the best solution for your needs.
Keeping Up with Your Business’s Financial Situation
When it comes to your business’s financial situation, there are many factors to consider. It is important to take the time to consider everything here to minimize issues and enjoy the benefits of a strong financial situation. Knowing what to expect and ensuring that you take the right steps will secure your business finances and ensure you are set up for success now and in the future, which is every business owners goal.