Most business owners didn’t start their business because they loved the idea of managing cash flow – they had an idea, vision and passion that propelled them forward. That is why keeping track of finances tends to be one of the biggest challenges for small business owners. The most important step for managing your money is to remain organized and think through the different factors that can both positively and negatively impact your cashflow, including saving, maximizing rewards, hiring and taking advantage of tax benefits.
Below are a few best practices and everyday actions that small businesses can take to manage their money more effectively.
DON’T: Believe saving a small percentage won’t add up
DO: Start saving from day one
When you’re first starting your business, it can be difficult to juggle setting aside cash with everyday expenses. However, keeping money in a business savings account – rather than your checking account – can help you build a nest egg with the annual percentage yield (APY). Start small by setting aside one or two percent of your earnings, and as your savings start to grow, slowly increase that percentage and focus on what you are saving for to give you clarity and motivation.
DON’T: Combine business and personal expenses
DO: Find the right business credit card for your business
A small business credit card can be an invaluable tool for your company. It has the potential to offer businesses secure and convenient methods of payment while also giving you short-term financing options and building your business credit profile. If you use a personal credit card for business expenses, it can be tricky to separate business and personal expenses for accounting and tax purposes. By using a business credit card, you’ll simplify the process of tracking business expenses, and can often pull specific summary reports, which can make it easier to keep your finger on the pulse of your finances, as well as help you maximize deductions and minimize tax burdens. Speaking of taxes…
DON’T: Be afraid of tax change
DO: Take advantage of tax cuts
There are several provisions within the Tax Cuts and Jobs Act passed early this year that can help to drive small business growth and increase tax savings. If you haven’t already, you should connect with a financial planner or accountant to determine how you could benefit from tax reform. For example, is your business eligible for the pass-through deduction? Should you invest in new equipment to take advantage of higher deductions and bonus depreciation? Every business will have different factors to consider, so evaluate how these changes may impact your business and what actions you can take to increase your benefits.
DON’T: Leave money on the table
DO: Use a business credit card to boost your bottom line
All small business owners, especially those that purchase supplies, inventory and equipment at a high volume should use a business credit card as a purchasing tool. You can capitalize on credit card rewards by setting up automated payments and using your card for payments you wouldn’t normally consider. For example, most major insurance companies will accept credit cards and, given insurance is usually a large expense, entrepreneurs can earn significant cash back when they pay for it with their business credit card. You can use the cash back rewards to reinvest back into your business in the form of new equipment, employee bonuses, etc.
DON’T: Shy away from implementing new technology
DO: Evaluate new tech opportunities to streamline financial management
It may feel as if there is a new technology advancement everyday (because there really is), but there are some proven ways to implement technology to streamline the financial management of your business. For example, look for a bank that integrates with accounting software providers like QuickBooks or Xero to simplify the time spent on managing your cash flow.
DON’T: Rush the hiring process
DO: Maintain efficient hiring practices
Streamlining your hiring process is another critical component to growing a successful business, especially in the terms of maintaining good financial health. Outline the specific tasks and expertise your business needs, then determine the number of hours per week you’ll require an employee to work to accomplish those tasks. You can also look to utilize online hiring sites, many of which use artificial intelligence to help match you with employees whose qualifications meet your needs. Business owners should also analyze cash flow and financial projections to ensure they’re able to support additional employees and determine how hiring will impact the bottom line.
The more you understand your business finances, the better prepared you’ll be to make smart money management decisions. Managing your business finances doesn’t have to be overly complicated in 2018. For those who struggle to keep on top of their business’ finances, or new business owners starting their own ventures, use these best practices to keep a firm and stable grasp on your business’ financial health and remain successful for years to come.