Managing your finances
Whether you are a large business owner, or a small business owner, financial management is at the heart of your business, and managing it correctly can be a big part of what will make or break you, and your entire business. So, you need it to be easy, and to know how to do it right.
In financial management, there will always be a set of factors that complicate it, and make it harder for us to reach financial ease. Things such as interest, tax, organized records, and so on, make it a lot harder for us to manage than things in our personal finances.
So, how can we adequately balance things and make it easier to manage our finances?
Importance
It is not enough to simply be good at math, you require more, and it is important that you have more. You need to understand the basic skills required to financially manage a business. Accounting, loans, statements, and properly calculating interest are all factors that require consideration. You could use accounting tools, CreditNinjas guide to calculating interest, or apps to help you.
However, the importance of financial management goes deeper, and while apps and tools will help, you have to do it right, and this is why organization is absolutely key! You cannot do any of this, and make it easy, without being organized.
So, here are some tips to make it easier for you. First, you guessed it. Organization.
Manage and track your cash flow
The cashflow is the money that moves in and out of your business over a specific period of time.
Cash will come in and go out of your business constantly. It comes in as an income, and goes out as an expenditure.
This ought to be adequately tracked as positive and negative cash flow. If the cash flow is positive, this means that you receive more than you pay out. This is a requirement if you are to remain in business. Positive cashflow means you can pay your bills and meet unexpected costs should they arise.
Negative cash flow is what most businesses do not want to see, but everyone will see at some point. There are always going to be negative cash flow experiences. These are often times when you have to buy a new piece of equipment for your business, or if a payment from a customer is overdue. You may need to rely on overdraft or short-term loans to cover this. However, as long as you plan for a bout of negative cash flow, and you can return to positive cashflow, there should be no serious issues.
Always consider tax
Whether you are your own accountant or have hired one, an accountant should be able to calculate your earnings before interest and axes. This is also known as EBIT. It is just your revenue for the month, less your operating expenses.
You should multiply your EBIT by 25% to 30% and move this into your savings.
This should then be sufficient to cover state and local income taxes, as well as any self-employment taxes By doing this each month, you are making sure you always have enough cash on hand to make your tax payments.
Filing- organization is key!
Back to what we mentioned earlier. You cannot financially manage a business if you are not organized, and for this reason it is always good to have a filing system in place. Be it online, or in the flesh, or both. Personally, we think both are good shots. Technology is frivolous, and you never know when you might have an issue, keeping a paper copy of your financial information can be a great backup.
You should always keep accounting and bookkeeping records, bank statements, contracts, permits and licenses, employee and outsourcing records, vendor records, and of course, your tax papers.
If you keep this online, make sure you organize it in a neat way that is easily readable. If you keep it on paper, to ensure that you can easily access each document when needed, a filing cabinet might be a wise investment in this distance.
You should separate your records by year and section them into different categories.
Having one cabinet for tax papers separated by year, and another cabinet for bookkeeping, separated by year, for example.
Consider accounting assistance
Keeping everything on a spreadsheet to start is not a bad way to go, however, you do not want to be this way forever, and this can get unwieldy, and there is always an opportunity for program errors to mess things up for you. So, why not look at accounting programs?
They can help you send invoices, provide different levels of income Vs expense tracking, help track clients and vendors, payroll processing, and so on.
Similarly, mobile apps can help, especially if you are a business on the move a lot. You can get accounting apps that help you stay on top of receipts, you can get apps that will help to track mileage if you travel for business, and apps that help scan receipts, track mileage and log billable hours too!
Technology can help you to simplify your financial management, take advantage of that!
