Business finances are the cornerstone of every small business. If you mismanage your finances, you may be unable to pay employees and debt or take advantage of potential business opportunities. Small business funding is an option to help fill in capital gaps, but you should learn how to manage your business finances to maintain healthy cashflow.
5 Tips for Managing Your Small Business Finances
1. Keep Your Personal and Business Finances Separate
It’s not uncommon for a new business owner to neglect opening a business bank account. A lot of single-person LLCs and sole proprietors make the mistake of mixing personal and business finances.
Opening a separate business bank account allows you to:
• Keep all debits and credits separate
• Organize debits come tax season
It’s easier to manage your taxes and lower the risk of legal implications of mixing a business and personal bank account together.
One of the main dangers of keeping your personal finances in the business account is the possibility of total seizure of funds in case there is a lawsuit filed against you.
Some of the key features to consider with business banking account include :
• Online and mobile options
• ATM access
• Deposit and withdrawal limits
2. Invest in Your Business’s Growth
Businesses need to grow to become profitable. When your finances allow, you need to invest money in growth. The growth opportunities that you come across need to be analyzed for both potential and risk.
When you invest in your business, you’ll be investing plenty of benefits like below:
• Lower employee turnover
• New products or services
• Future growth opportunities
A portion of your finances should be invested back into the business. The reinvestment varies greatly from one business to another. Some small business owners claim that they reinvest 10% of their profits into their business, while others reinvest 50% of their profits into their business.
Choose a comfortable amount of money to reinvest in your business to continue increasing revenue and profit margins.
3. Hire a Bookkeeper or Use DIY Software
Viewing your bank account balance is not enough to manage your finances. You need to have a full understanding of your:
• Profit margins
You can, and should, hire a bookkeeper who will be in charge of keeping all of your business finances in order and also prepare your taxes.
If you’re just starting out and don’t have much small business funding, you have several options for DIY bookkeeping software:
You can also pay a professional to teach you how to best utilize the accounting software for your business.
4. Obtain a Credit Card or Revolving Line of Credit
Responsible debt is part of most business operations. There will be times when invoice payments are late and you will struggle to pay your own debts or employees.
Two good options are:
• Credit cards
• A revolving line of credit
One of the leading and most flexible methods of small business funding is to take out a revolving line of credit. You will have an open line of credit that you can access for business expenses and only need to make payments when you borrow from the account.
You can repay the balance and continue using the account in the future for any expenses that arise.
A line of credit will often have a lower interest rate than a credit card, so it’s the optimal choice when you need immediate funding for operating expenses.
5. Pay Your Taxes Quarterly
Federal business taxes need to be paid. You’ll pay-as-you-go by making quarterly payments. These payments are estimated, and you will have to file an annual income tax at the end of your fiscal year.
You will need to pay multiple taxes, including:
• Income taxes
• Self-employment taxes, which pay into Medicare and Social Security
• Estimated taxes, which we discussed above
• Employment taxes if you have employees working for you
• Excise taxes, depending on the goods you sell
There may also be additional tax obligations with your state. Be sure to discuss these obligations with an accountant so that you don’t fall behind on your taxes.While these are the most important tips you’ll need to follow when managing your business finances, there’s still a lot more you can do to manage your finances. Consider loans and SBA funding to raise capital and consult with an accountant on how best to manage your finances.
Sutton Funding is a direct lender providing quick small business funding and the lower rates than your current provider.
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