Are you a newly minted small business owner? Congratulations! Small businesses are the backbone of the economy, so it’s important to do everything you can to make your business a successful one.
The first step in ensuring the longevity of a new business is making sure that you have the right insurance. Contact insurance companies, like this state farm toll-free number, to find out how they can help keep your business safe.
A 5-Step Program for Effective Financial Management
If you’re feeling overwhelmed by your half-baked financial plan, there’s no need to despair—there are some simple steps you can take to get your business finances back on track.
#1. Separate Personal Finances From Your Business
When it comes to finances, it’s important to keep your business and personal savings accounts separate. It keeps you organized and prevents costly mistakes or mix-ups down the road.
Here’s how to separate your finances.
Open a Business Bank Account
New business owners should have at least one bank account solely for their business. This step is essential to managing your finances right from day one as it tracks your business’s cash flow.
When choosing a business bank account, be mindful of the following:
- Banking fees: Banks may charge monthly fees, while others charge fees per transaction. See which is better for your business operations.
- The features you want: Does the bank offer online banking? Can you easily deposit checks? Are there ATM fee waivers? Before choosing a bank to do business with, make a list of your requirements and see if they check the boxes.
- The bank’s services: Does the bank have branches near your business? Can you easily reach their customer support by phone or email? These considerations may not matter too much at the start, but they can be helpful when you need assistance.
Get a Business Credit Card
Some business owners pay for the equipment and supplies they use for their business using their personal credit cards. This habit can make managing books a nightmare, especially when filing taxes. Thus, having a credit card solely for business purposes will keep your finances in order and build your business’s credit.
Set a Budget for Your Business
Budgeting is simply a way of keeping track of your income and expenses. By avoiding personal splurges on your business account, you can have a more accurate view of your cash flow and make sounder financial decisions. A budget is a strategy for the way you choose to spend your money. If you are spending your money without any planning, it can be difficult for you to save and maintain your wealth. In this case, it is important to hire financial planning advisors to help you with your business finances. A financial plan raises your awareness of your spending habits and helps you manage your money.
Creating a budget is overwhelming, but once you prioritize the essentials first, you can maximize income and minimize expenses. Then, as your business grows, adjust your budget as needed.
#2. Organize Your Finances with Software and an Accountant
Organizing your business finances is essential to running a successful operation. A successful business often comes with a good base. That’s where accounting software and an accountant come in.
Accounting software provides a centralized place to track all your financial information. Having an overview of your business’s health in one place makes it easy to see whether you have a positive or a negative cash flow.
If you don’t have a lick of financial sense, you can turn to an accounting services company for expert advice on financial planning and management. For example, they can set up your bookkeeping so that spotting any cash flow problems is easy. Plus, they can help you do payroll taxes and create other financial statements.
By hiring an accountant and getting accounting software, you can get your business bookkeeping organized and under control. It will reduce a lot of stress from managing your business.
#3. Comply with Tax Responsibilities
This next step is not only an important one but also something you’re legally bound to do—complying with tax regulations. Whether you have an online eCommerce business or are a big box retailer, you are required to pay federal, state, and local taxes.
Filing your taxes on time and paying the correct amount of tax owed are essential to maintaining a healthy business. Failure to do so will leave you with huge penalties or—worse—time in jail for tax evasion.
Many resources are available to help you determine what taxes you need to pay—for example, ecommerce sales tax for online businesses. The Internal Revenue Service (IRS) website is a good place to start. Or you can ask your accountant to file your tax returns for you.
#4. Learn the Importance of Personal and Business Credit Scores
One of the most important things to understand as a business owner is how your personal credit history can impact your business’s ability to qualify for credit products.
Lenders will often take a close look at your personal credit score and report when considering whether or not to extend credit to your business. A low score can be a red flag that indicates you may be a higher-risk borrower, which can make it more difficult for your business to get the financing it needs.
In addition to personal credit score, creditors look into your business credit score. They use it to determine whether or not to give you a loan, and it can also affect your insurance rates and potential business partners’ perception of your company.
But how does your business credit score work? It is based on your due diligence to pay off your accounts payable promptly. Lenders will look at factors such as the following:
- Debt-to-income ratio
- Payment history
- Outstanding balances
- Bankruptcies or liens
Based on this information, they will assign you a numeric score representing your creditworthiness.
If you have negative cash flow due to high current liabilities, you might incur a low business credit score. Thus, we recommend making it a habit to do the following:
- Pay your accounts payable based on the payment terms.
- Keep your debt levels low.
- Avoid taking on loans too quickly.
By following these tips, you can improve your business credit score and make it easier to get the financing you need to grow your company.
#5. Know Your Business Loan Options
Taking out a business loan is a big decision with all the risky interest rates and short payment terms. But if you’re smart about it, short term small business loans can give you the boost your business needs to grow and succeed.
Before shopping for a business loan, it’s important to know your options. There are two main types: short-term and long-term.
Short-term loans are typically used for immediate needs, such as paying for inventory or covering unexpected expenses. They usually have lower interest rates than long-term loans, but they need to be paid back relatively quickly—typically within a year.
Meanwhile, long-term loans are typically used for big investments, such as branching out to new facilities or buying new equipment. They tend to have higher interest rates than short-term loans, but you’ll have more time to pay them back, usually several years.
Final Thoughts
Financial management is the lifeline of your business. By following our guide, you can ensure a strong foundation for a successful business.
If you’re looking for more detailed advice or want to dive deeper into finance and tech, be sure to check out our other articles, such as how to drive local and global business effectively. With the right knowledge and tools, it’s easy to keep your business finances on track and ensure a prosperous future.
AUTHOR’S BIO:
Mike Pignatelli, CPA, is the CEO of Unloop, an agency built to meet the accounting needs of modern eCommerce businesses. As an experienced financial controller, Mike has worked with various seven-figure inventory businesses. Mike and his team are your go-to accountants if you need reliable data to make sound financial decisions.