Kickstarting your own business is an exciting time and it is easy to let everything get the better of you, especially if you are starting it alongside a full or part-time job. One of the biggest problems that face new entrepreneurs today is managing small business finance—this is one of the trickiest areas of business and it is something that, if mismanaged, can cause serious problems.
The trick with managing small business finance is to not only know what your obligations are but to develop or use a system to keep them organized and bring an accountant on board.
5 Tips for Managing Small Business Finance
Although it’s a skill that takes both knowledge and time to get right, managing small business finance isn’t as hard as it sounds. Here are 5 of our best tips to help you achieve it—
1. Keep your personal and business finances separate
When running a small business, especially when you are just starting out, it is very easy to mix the two pots together—your personal and business finances—and this can cause problems when it comes to tracking income, expenditure, and filling out a tax return.
If you haven’t already, contact your bank and set up an account that is solely for business use. This way you can see exactly what income and expenditure belong to your business.
2. Keep track of everything
Financial software is a must-have for any business, even if you’re only a small-to-medium sized enterprise. Investing in robust financial software early on will save you a lot of headaches further down the line and enable you to get ahead with your bookkeeping straight away—no more stowing receipts away in files.
When it comes to paying taxes, all you will need to do is log in to whatever software you are using and extract the information that it’s automatically compiled.
3. Get an accountant
An accountant isn’t just there to sort out your taxes at the end of each year, they are specialist financial advisers who can save you a lot of money. Think about it—they know the tax system inside out and know where you can save, make claims, and legally play the system. You, in contrast, probably don’t.
As a small business, you don’t need to hire a full-time accountant, either. You can outsource it so that you only pay for what you need when you need it.
4. Make sure that you are paid first
Even if you’re working full-time alongside your new business, you still need to pay yourself. Now, we’re not saying you should take all the profits as soon as they come in, but there’s nothing wrong with taking a small, modest amount of money out of the profits to pay yourself with.
Even if it’s just 10% of your profits, it’s still something and it is a way to reward yourself for your hard work.
5. Protect your business and yourself through incorporation
Every business is different, however, all of them require some level of protection. You should consider whether it is worth incorporating as a company or taking out business insurance to cover your back in case you are ever sued (touch wood!)
Even if you are the smallest of small start-ups, registering as a business separates your personal property and identity from your business property and identity and should the worst happen, you would not be personally liable. If you are a financial advisor, for example, working on a freelance basis, you are obviously more prone to potential legal action than somebody who makes and manufactures greetings cards.
Managing Small Business Finance is Simple
Although it can seem daunting at first, it’s a relatively straightforward task that involves knowing what your obligations are, doing a little research about what works best for your type of business, and having a system in place to monitor your finances.
Keeping on top of and managing small business finance should be your main focus as a new start-up, however—financial mismanagement is a leading cause of small business failure and such mismanagement can cause a lot of damage very quickly if you are not on top of everything.