How to Fund Your Small Business and Manage Finances 2021

Mixing your personal and business funds can result in disorganized records, leading to overspending and missed growth opportunities. If you don’t monitor spending, you could be racking up bills that you don’t need. And, failing to monitor spending can lead to overspending and misuse of funds.

• For example, being mindful of how long it takes clients to pay invoices can help you plan accordingly.
• Taking action in advance might help you avoid potential problems before they can occur in the first place.
• This helps you manage cash flow and ensure your personal expenses are covered.
• When it comes to the financials of running a business, most small business advice falls into two schools of thought.

Some may be willing to put money into your company on an interest-free basis. Many lenders will require you to offer collateral or a personal guarantee to be approved for funding. Collateral refers to an asset that can guarantee you’ll pay the loan, such as your house or another high-value property. Similar to a credit card, once you take cash from your line of credit, interest begins to accrue. The amount you can spend depends on the available credit you have left.

What is Financial Management?

Or perhaps you have plans to introduce new products or services, grow your customer base, hire additional team members, etc. That may require a commitment for you and key staff members to participate in continuing education programs, attending industry events, and take advantage of the right investment opportunities. Depending on your growth-related business goals, long-term business loans might be worth considering as well. Investing in the growth of your business is essential for its long-term success and survival. On top of any monthly payments you set aside for yourself as a business owner, consider earmarking funds for continuing education and future investments in your company as well.

Money spent getting a CPA to help you set up your books is money you’ll save paying a CPA to sort through and correct errors later. With the double-entry system, every transaction is entered into your books twice. It’s more complicated than single entry, but it provides more information about your business. Unlike single entry, double-entry bookkeeping tracks your assets and liabilities in addition to revenue and expenses and has the checks and balances needed to reduce errors. Double-entry bookkeeping also gives you the information needed to create detailed financial statements showing which areas of your business revenue is flowing into and out of. Chances are, with a little digging, you’ll be able to find some rough numbers on the level of growth to expect in your first year and which months will do the heavy lifting in terms of sales.

Plan for and pay business taxes

For example, if a bank thinks your business is too risky to lend money to because you have bad credit, the SBA can guarantee the loan. The bank then has less risk and is more willing to provide the business loan. SBA loans can be used for most business needs and vary in amount. Small business loans generally have more favorable terms and are more accessible to a wide range of credit types. Established small businesses, typically with two years in operation, generally opt for term loans. They use term loans to buy assets (such as equipment) or growth investments, versus using it to cover day-to-day expenses.

On another day, you can work for 30 minutes on any personal finance issues. As a small business owner, it’s really important you plan for taxes. If you own a profitable business, you need to plan to put funds aside to pay the taxes you will owe the government.

Track Expenses

This can hamper growth by not taking advantage of business opportunities when they arise, like making capital expenditures for new equipment that could lead to increased revenue. Securing financing is challenging, time-consuming and requires expertise. The best way to manage your finances is to easily see the big-picture of cash coming in and cash coming out.

It also shows your equity — the difference between assets and liabilities — which is the amount of money you would be left with if you sold all business assets and paid off all business debts. You can usually find one that offers free checks, no monthly maintenance fees and unlimited transactions. Knowing how to track and what is operating cash flow manage your finances will give you peace of mind that more than makes up for any challenges you may face building the skill. And the more you learn to manage money, the easier and more intuitive it will become. Cash-flow statements show you how much cash your business has earned or used during a specific time period.

How To Manage Your Business Taxes

Financial management is essential for any business, but particularly so for independents. The 33.2 million SMEs across the US don’t usually have as much access to capital as bigger businesses, which makes it increasingly difficult to recover from financial downturns. For example, soon after joining QuickBooks, I heard the story of our customer, Jessica Spaulding, the founder of Harlem Chocolate Factory. Soaring prices of raw ingredients as well as supply chain issues threatened to disrupt the business Spaulding worked so hard to build — a message many small business owners can relate to.

• Monitoring your books lets you see in real time what’s working well and what needs tweaking.
• Basically, bookkeeping involves entering your sales and expenses into a spreadsheet and filing your receipts as a backup.
• Make your financial management easier with HoneyBook’s all-in-one clientflow platform.
• In addition, organization is a major component of sound money management.

From taxes to future investors to your own memory, keeping your business and personal expenses in a separate account or spreadsheet will help reduce financial angst in the future. But tracking all the invoicing, financial reports, data collection, document storage and compliance is time consuming and prone to error when done manually. Business accounting software can help reduce costs and automate these tasks. Business accounting software puts accurate financial data into dashboards and charts so you and your team can access up-to-date financial information.

Cash flow forecasting and planning for the future

Assets, on the other hand, are what you own, such as savings or equipment. It’s often been said that it “takes money to make money.” The more I talk to entrepreneurs, the more I think that’s true. The importance of working capital for businesses that are growing or getting off the ground cannot be understated.

Keeping up with your finances can help you mitigate fraud or risk. As your company grows, you may want to purchase more commercial real estate, acquire additional insurance policies and take out more loans to facilitate these pursuits. With poor business credit, getting approval for these transactions and acquisitions may be more difficult. If you follow these tips and are able to avoid these money mistakes, you will be setting a solid foundation for your business finances and in turn, your overall success. There are folks out there that would tell you to get a business loan in the event of an emergency. A budget helps you lay out your income and expenses (budgeted and actuals) and helps you get a clear picture of how your business is doing financially.

Separate business and personal funds

Cash flow forecasting is a process that allows you to create projections for the financial future of your business. When it comes to choosing a financial pro to support your business, you have options. Determine what your needs are, research financial professionals that might be able to fulfill those needs, and interview pros until you find the pro (or pros) that fit the bill.