Mastering small biz finances
Small businesses are the backbone of the U.S. economy, but small-business owners often struggle to keep their finances in order while managing the day-to-day operations.
Smart financial management plays a critical role in a business' success or failure and it doesn't have to be complicated, according to the Minnesota Society of Certified Public Accountants.
Separate business from personal
One of the easiest first steps is to open business bank accounts that are separate from your personal bank accounts. Separate accounts will make record keeping easier and help avoid paying personal bills out of business income.
Understand business finance 101
You don't have to be a numbers whiz, but you should understand the basics, such as your profit and loss statement.
Don't be intimidated by this simple document that helps you see your expenses and revenue in black and white.
Get your CPA involved in your business planning early.
Ask your professional expert to teach you how to understand your "numbers" and make decisions with the information.
Know the code
That is, the tax code that affects you. As a small business, you'll pay estimated taxes quarterly to be applied to your liability when you file your return at the end of the year.
Keep up with the dates payments are due and your estimated amounts. Be sure you've set enough money aside.
If you have employees, you'll need to know and understand how much you need to deduct from their paychecks to cover their tax liability.
Plan for the worst, hope for the best
Create a budget and spending plan for your small business that includes paying yourself a proper amount and developing a financial cushion for lean economic times.
Have a contingency plan should you lose your best customer, or in case you don't receive payment on time or the economy takes a nosedive. Know how certain crises will affect your cash flow.
Send those invoices
You'd be surprised at the number of small-business owners who put invoicing on the back burner while they fight fires in the day-to-day business environment. By not invoicing in a timely manner, you can create a cash flow problem for your business, making it difficult to meet your financial obligations.
So get those invoices out quickly, and follow up to make sure they are paid on time.
Cash is king
It's trite, but true: cash is king, especially in difficult economic times.
If you're considering a capital purchase that will require you to incur debt, be sure the expenditure will generate enough cash to pay for itself over a reasonable period of time. Otherwise, you might want to consider waiting to make that purchase.
When your small business is fighting for survival, there are no sacred cows.
Step back, take an objective look at your finances and be prepared to make the tough decisions. Are you getting the maximum return from your investment? If not, why not? Do you need to sell assets that aren't contributing to the financial health of your business?
Got debt? Many small businesses do, but you can actually make debt work for you. Good debt management helps cash flow by providing short-term financing for seasonal needs, or long-term financing for major purchases.
You need timely information to run your business and to file your taxes, but the time may come when you need to ask for a new loan or change the terms on an existing loan. Be organized and prepared.
Have current inventories, cash flows and balance sheets ready for review with your bank. Be proactive in contacting your lender. Have a plan to resolve your current situation.