Posted on 1/19/2023, 9:27:06 AM
There’s a lot riding on well-managed finances for small businesses. As many small business owners would agree, there’s not much room for financial blunders. It’s important to build healthy financial habits early on, so we’ve rounded up things to watch out for and how to address them:
Some businesses start out with a general idea of how their finances are going to be, but it’s important to put it into writing, and have estimates of revenue and expenses that are as accurate as possible— or else your finances could go haywire. A budget is particularly important for businesses that rely on seasonal revenues. For example, a huge percentage of your income could come from the holiday season; but how do you strategize to maximize these profits over the course of the year?
Debt is almost always a constant for businesses. In most cases, debt is essential if you’re launching, scaling, or expanding your business. However, incurring too much debt can be disastrous, especially if it takes time for your positive cash flow to start, as debt can quickly multiply.
Taxation is different for each business structure, what works for a sole proprietorship definitely cannot work for LLCs or corporations. For sole proprietors, you’ll have to compute business taxes together with your personal income tax. For LLCs and corporations, this could become a little complicated, as there are corporate rates and other considerations to think about. In either case, it takes taxation knowledge, effort, and proper money management to work through proper tax filing.
Tracking your financial activities is important for your business, not to mention beneficial for your business intelligence planning. When you have an effective system that documents the precise inflow and outflow of money, it helps you create a better budget. It also allows you to see your business trends, which could lead to more informed decisions. Record keeping doesn’t have to be an elaborate process either; while you can buy digital systems to keep track of your finances, you can just as easily keep receipts and ledgers in folders. What matters is that you have comprehensive financial documents that you can access anytime and that you use these to create realistic budgets and projections.
Small business owners tend to have a do-it-all approach to running companies, from shopkeeping, marketing, and managing finances. With all the responsibilities you have, some things may fall through the cracks and lead to financial slip-ups. Fortunately, there are financial managers who are adept at avoiding those mistakes and can assist you in handling the business’ money more efficiently. In fact, the demand for such financial managers has had a 15% growth rate, with currently over 108,000 open positions. Incidentally, the increasing popularity of online remote learning has helped address this high demand. More individuals can now take an online business administration degree and specialize in financial management. Through these online degrees, they learn to create financial reports, assess investments, and become adept at business planning. Since these graduates are trained by a state-accredited institution and instructors, you can be confident that they’re just as competent as those with more traditional university training. When hiring a financial manager, it's important to check that they have the aforementioned skills and some experience in handling a business similar to yours.
When you’re just starting out, it could take a while for you to make a profit. And even then, this amount usually goes to paying for debt and reinvestments to sustain your business. It’s easy to overlook money for taxes and land on the wrong end of the IRS. You’ll need to figure out what percentage of your income should be set aside for taxes. There are several online tutorials and software to help you calculate taxes, and in no time, you’ll be able to figure out a system that lets you set aside the right amount of money for taxes without compromising finances for other expenses and investments.
Having healthy finances helps you focus on the other aspects of your small business so it can flourish and grow.
Article contributed by Jennifer Rose
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