Financial management can take many years to master. Managing your money is difficult but so vital to grow and develop your business. Nowadays, we are blessed with the ability to hire accountants to help manage our business finances for lower costs than you may think. However, you cannot be purely reliant on accountants alone as you are accountable for managing your finances. Here is your guide to equipping yourself with the essentials to manage your finances…
Understand the basics of finances
All business owners must have the basic skills of managing finances in order to have a successful business. There is terminology which is vital to know like the breakeven point, net profit, cash flow, expenses and gross revenue. These will be terms used on a daily basis so make sure you understand them all.
Furthermore, you must also understand business accounting documents such as revenue forecast, cash flow statement, income statement and balance sheet. If you aren’t familiar with these terms and documents, google them and research what they all mean and do. It will be invaluable knowledge for your business.
Keep track of your cash flow
Cash flow is the money that goes in and out of your business and is easy to lose track of so ensure you are organised and know where it is at all times. The inflow of your business is from selling your goods whereas your outflow is the money your business spends on stock, payroll as well as marketing too. Try to always keep your outflow lower than your inflow, even though this could prove difficult. Just bear it in mind at all times and never lose track of your business goals.
Ensure your business and personal finances are kept separate
If you are a small business owner, it may seem easy and simple to have all your finances in one account. This is not recommended as it makes your business disorganised and can lead to tax issues as your business grows larger in the future. The first thing you should do when setting up your business is having two separate bank accounts for your personal life and company.
Spread out your tax payments
Paying your tax in a lump sum isn’t always the wisest of moves as large amounts of money leaving your cash flow can seriously affect it. Instead of this, try and opt for tax as a monthly expense. This will help you with budgeting.
Have a business cash reserve
Have a business bank account that can be used as a cash reserve. Top it up as often as you can and make it easy to withdraw money when needed for your business. This will take the pressure off when you have any additional bills to pay for your business.
If you need assistance with your business accounting, contact me today!