How To Manage Your Business Finances
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Running your own business is a dream of many people, but managing the business finances is often neglected. You can be your own boss, set your own work schedule, and make all the decisions that affect your business.
It sounds perfect, and for many, it is. But the cold hard reality is that owning a business can be tough work.
Say, for example, you’ve been a florist all your life, and you’ve decided to go it alone. You know everything there is to know about flowers, and continually update your knowledge. But, working with the flowers is just a small part of the business when you are the boss. Staying on top of your business finances is vital if your dream is not going to be a nightmare.
Separate Personal and Business Finances
Many people start their business life as a freelancer or sole-trader. Often, it is an additional income stream to their principal salary. It is very tempting to lump all your finances together, using your personal bank account for business transactions.
For a small business with only a few transactions, it may seem okay. But it can quickly get out of hand and complicated when it comes to submitting your tax declaration. This also prevents you from accidentally using personal funds for business use or vice versa.
Opening a separate business account makes a great deal of sense. Not only are all your business finances kept separate, but there are other advantages. With a Penta Business Account, you can link your accounting package, add categories to transactions, and see where the money is going.
Of course, separating the business finances from personal means, you need to remember to pay yourself! All too often, small business owners will pay staff, invest in the business, and not pay themselves. But remind yourself why you are running the company in the first place!
In the early days of your business, it can be tempting to plow all the income back into the company. But what happens if the company fails, as so many do. You will have never paid yourself, and you are left with nothing. Yes, of course, investing in the business is essential, which is why managing business finances is so important.
Get into a Routine
With so much to do, it’s very easy to forget about the business finances and keep putting it off. The best advice I ever had was from an accountant. He told me to allocate 15 or 30 minutes to do your accounts at the end of each day. Depending on the business, you may need more or less time than this, but the advice is the same.
If your accounts are not up to date, you cannot possibly know where your money is going. Without accurate accounts, you cannot make decisions on the direction of your business. It is tempting to rely on spreadsheets for your accounts.
However, for a small cost, or even free, a software accounting package offers many features. Income and expenses can be categorized. Reports can show where the money is going. Graphs and pie charts can give a visual representation. All this information allows you to plan the business finances and control it.
Accurate business accounts are fundamental to managing your business finances, and a Penta Business Account can help. Open a Penta Business Account and benefit from automated accounting, saving you time and money.
Control your Income and Expenses
With your accounts up to date, and with your accounting package reports, you can analyze the data and plan. Cash flow is the lifeblood of business finances. Controlling the flow of cash is essential to keep your business afloat. Here is a brief look at income and expenditure control.
- Billing. Every business owner has a client that is slow to pay. You’ve tried reminders, phone calls, and continuous badgering, all to no avail. An alternative is to offer a small discount, say 2%, for early settlement. If it brings the funds in on time, it’s worth it.
- Most profitable clients. You probably have one or two clients that generate a large proportion of your income. This is risky, should you lose that client. But using the information, focus your client-finding expenditure on similar clients.
Split your expenses into essential, nice to have, and those providing little or no return on investment (ROI).
- Essential. These are required to run the business. Buying stock, paying the utilities, paying the rent, etc.
- Nice to have. It may be an uncomfortable truth, but your staff may not be essential. If it’s a small business you started by yourself, then you can do the work of the staff. If it’s a choice between paying staff or the business folding, then the staff become non-essential. When times are better, you can employ the staff again. Starting a new business again is much harder.
- Low ROI. Your business probably uses subscription services. Maybe software services or marketing services. Go through them one at a time and work out the ROI. Remember that ROI can be measured in various ways, not just profit. The ROI could be substantial time savings, for example.
Going through the exercise above is an excellent way of clearing out non-essential expenses and identifying where you may find new clients.
Plan a Budget
You now have your transactions recorded correctly in an accounts package, and you’ve assessed all your income and expenditure. With this knowledge of your business finances, it’s time to plan for the future.
Where do you want the business to be in three months, six months, or 2 years? How can you make this happen? Where will you find new clients?
Planning like this gives you goals and targets. You can compare what happened to the plan over the coming months and make any adjustments required. Your financial plan is a living document that should be updated regularly.
Contact us today about opening a Penta Business Account, and start to get your business finances in order.