Keeping accurate, up-to-date financial records helps business owners know whether their company is on solid footing. Besides good record keeping, there are ways to organize finances in a way that helps your business in both the short and long-term.
Here are 8 tips for managing your company’s finances that will help reduce accounting problems.
Choose a Framework
Decide what kind of company you have so you can register it properly with the federal government. This also determines how taxes on your business get calculated and assessed. Educate yourself on what it means to be an LLC, as opposed to a sole proprietorship.
Also, check out the C-corporation and S-corporation options to see if either of those are a better fit for your business.
Set up Accounts for Checking and Savings
Just as you need personal accounts for your checking and savings, your business needs the same kind of set-up. Choose a local bank, or a national bank with branches nearby. This allows you to pay vendors, employees, the utility company, and others.
Don’t Mix Business and Personal Finances
For accounting and tax purposes, it’s better to keep separate accounts, one for your business and one for your personal finances. The law doesn’t need you to keep them in different accounts if you’re a sole proprietorship, but there are benefits to doing it. For example, if you decide to put your business up for sale, it’s a simpler process in terms of determining its assets when business finances are not mixed with personal funds.
Use Software to Track Funds
Traditional financial software such as QuickBooks from Intuit and GnuCash, an open-source option, give you powerful tools for organizing, tracking, and sorting your company’s finances.
Just as workflow automation software improves day-to-day financial matters, the financial software you use improves your understanding of how your company’s performing over time. From printing reports to keeping tabs on cash flow, these software packages allow you to support a strong grasp on your company’s financial health.
Monitor Bills and Pay ThemJust as you diligently pay bills on time as a private citizen, do the same as a business owner. Take advantage of automatic bill pay, when it’s available. Ask vendors for a discount if you use an automatic payment option, because you’re ensuring them that they’ll get your payment on time. Just be sure to end those payments when you no longer make purchases from that vendor.
Likewise, regularly check statements for any credit cards tied directly to your business. Watch for potential abuse by employees, billing errors by the credit card company, and changes in terms and interest rates.
Organize Accounts and Debt
For whatever reason, your company may have open accounts that it never uses. It’s wise to check for these accounts regularly and close them. Keep a list of all the credit card accounts, savings, checking, IRAs, CDs, and other accounts you have tied to your company.
Also, follow the amount of debt your company has. Check out the possibility of consolidating debt to a low-interest credit card.
Know When to Involve Professionals
Don’t just visit your CPA when it’s time to pay Uncle Sam. Your CPA can offer advice on how the long-term financial landscape looks for your business. Plan to meet with a CPA a couple of times a year to check your financial records and discuss the next couple of quarters.
Make it Easier to Receive Payments
One part of organizing your finances is deciding how you’ll accept payments. Will you accept personal checks, if the payer provides a valid driver’s license number and current address? Do you let customers pay with credit cards, practically a necessity in a world where cash exchanges are on the decline?
If you’re looking for ways to accept credit cards, there are several devices that attach to smart phones and let you swipe cards. These tools are increasingly popular with small businesses looking for a fast and easy way to accept major credit cards. In addition, consider letting customers pay online through services such as Paypal. Having convenient ways to pay increases the chances you’ll get paid for your product or service.
By getting more organized, you’ll have a better sense of how well your company is doing financially. From cash flow to debt, you’ll get a clear picture of where your company’s strengths and weaknesses are in terms of its finances. In addition, you’ll enhance your company’s profitability by making it easy to pay your bills on time, accept payments, and track financial performance.
This is a great list of tips! I am making the self-employment switch soon and there are so many things to think about and do.
Simon @ Modest Money says
Excellent tips. When you cross to managing your business, good record keeping is something that you can only ignore at your own peril. Good financial records will give you a snapshot of your business situation, point out areas you could improve on and makes it childplay when tax-time rolls around.
And automation software just removes the hassle in most of the process and saves a tonne of time!
Victor Wooten says
The only thing in life achieved without effort is failure.
Julie @ WarriorNurse says
I hate to admit this, but my husband and I have really been dragging our feet with organizing our business into a legal entity. Others may share this sentiment, but I find legal things, while important, a bit intimidating and daunting. We have been considering forming into an LLC….it seems like that would be the best option for us. Would you happen to have any recommendations for forming an LLC? Perhaps a company online/offline? In your experience, what is about “normal” to pay for that?
Victor Wooten says
Failure does not mean that I should give up; It does mean that I should try harder.