By Vanessa B
If you’ve recently set up a new business, especially if it’s your first business, then you may be overwhelmed when it comes to dealing with finances. These days, with new technology and new finance methods being introduced, it’s important to keep up with trends.
Consider using software to track your income and expenditure, and where possible digitize your data and information. Here are some tips to get you started.
Track Income And Expenditure
Crucially, you need to know how much you’re making. There are a few ways to do this, you could track it monthly, weekly or daily, to help you understand the inner mechanics of your business.
Either way, consider using a spreadsheet, such as excel, to help break down your income. Being able to track income will allow you to see what part of your business is doing well, and what part will need some extra work. There is specialized bookkeeping software that can assist in this regard.
Consider having an income goal to work towards, realistic at first but then have something to aspire to.
If you’re tracking income, then you absolutely must track expenditure too. You can do this the same way in which you would track your income, even on the same spreadsheet. With spreadsheets, you can put in calculations that will inform profit or loss margins, you can color code these too.
Establish A Business Bank Account
Separating your business and personal finances is very important. It will confuse you during tax periods, leading to late returns and potentially business hours wasted reorganizing.
If you have an employee identification number, otherwise known as EIN, then you can apply for a business account. Alternatively, you can open up a new personal bank account and use it as a business account, but it’s usually best to go with a business account for the terms applied.
Allowing your business income and expenditure to only flow through this account, will help you with paying bills and keeping track of profits.
If you mix both personal and business, you could be jeopardizing the legal protection around your business. When it comes to lending money and working with creditors, you’re more likely to get approved for financing with an effective business account.
Learn About Business Finance
If you have started a small business during this economy, then you have initiative and a work ethic that will carry you forward. However, that doesn’t mean you’re guaranteed to be successful.
The financial world has changed drastically recently, and there will be managerial financial models that you’ll benefit to learn from. To effectively manage organizational success, you as a business owner will need to have a firm grasp of finance.
You can study for an online finance course to learn more about how to apply modern finance systems to your business and manage your business effectively. These sorts of courses last a few weeks and are taught by professionals. At the end of it, you’ll come out with not only your certificate, but you’ll have the tools to understand corporate finance.
You’ll also have an understanding of financial reports, allowing you to apply valuation principles and techniques to aspects of your business. Usually, there are a range of modules you’ll learn, from forecasting to cash flow analysis.
As a small business, it’s likely you’ll still have quite a bit of paperwork to deal with, both in terms of payment receipts and general reports. It’s important to digitize paperwork in order to stay organized. When it comes to saving documents, consider using a 3rd party service to store everything and keep them filed away for when you need them.
These 3rd party digital storage companies have options available purely for businesses. They are able to set up custom plans for what will suit your storage needs. Usefully, they have contingencies in place for when you lose data. Such as if your hard drives were destroyed, or any damage to your business such as fire or electrical.
You can still, of course, keep hard paper copies if you so wish. It’s always useful to have account and bookkeeping records for tax reasons.
Set Money Aside For Taxes
Speaking of tax, as well as gathering paperwork for when you have to send off tax returns and forms, it’s always a good rule of thumb to put some money away for taxes.
You should have enough to cover state and local income taxes, as well as self-employment taxes, allowing you to make quarterly tax payments regularly. If you have an accountant, they will be able to assist with this and calculate your earnings before interest and tax, known as EBIT.
If you multiply EBIT by 25%-30% and move that amount into your savings, you should be able to pay your bills.
Using these tips, you should be able to overcome the challenges that your small business faces in 2021, and achieve your goals.