Tips for Managing Small Business Finances

Being an entrepreneur comes with its triumphs and challenges. As a new business owner, chances are you do not have a team in place to help with operations, finances, marketing, sales, and much more. You will likely be good at some of these things while others will be a bit of a learning curve.

This article is for small business owners and entrepreneurs looking for advice on how to manage finances for their companies.

Why should a small business owner care about their finances?

Getting a hang of your business finances can provide a clear picture of your company’s financial health and help drive important business decisions. For example, having a cash flow statement will help business owners understand if they have enough cash to run the day-to-day operations of their business.

 Tips for Managing Small Business Finances

1.       Separate personal and business finances

This is one of the easiest things you can do as an entrepreneur to simplify their accounting process and protect their assets. It also helps in tax calculations since all expenses and income are in one bank account.

2.       Create a budget

Having a business budget will help you determine if you have enough money to fund operations, expand your portfolio and make sound decisions. The risk of not having a budget is spending money that’s not there or spending too little that your business will suffer. Some small business budgets include cash budgets, flexible budgets, static budgets, zero-based budgets, and incremental budgets.

3.       Be proactive with bookkeeping

It’s important to keep your business records up to date to monitor your business’s progress. Proper bookkeeping will show which products or services are selling and at what margins, whether your business model is working and what changes need to be made.

Set up systems and processes to automate bookkeeping so that you can focus your time and energy on running operations and reviewing your finances. If you’re not familiar with financial statements like income statements, balance sheets, and statements of cash flow, it’s important to familiarize yourself and understand how to properly interpret them.

4.       Don’t wait to send invoices

Dealing with invoices may be your least favorite thing to do as a business owner. It’s however one of the most important. A simple but good billing strategy should be able to efficiently generate invoices, send them to customers and keep track of payments. This will reduce cash tied up in invoices which will help you avoid cash flow problems.

Agree on payment terms with customers beforehand and send an invoice as soon as the work is done and depending on your terms.

5.       Spread your taxes

Paying taxes goes hand in hand with running a business. From federal to provincial to municipal taxes, you need to be aware of which taxes your business needs to pay. Things like planning, preparing your taxes accurately and on time as well as knowing what deductions are available so you can save on the taxes your business is required to pay.

Since paying taxes is almost inevitable, spreading your deductions will protect your cash flow, ensuring you don’t pay too much in one month which will strain your cash flow. This can be done through things like capital cost allowance (CCA) deductions.

Capital cost allowances are the amount of depreciable asset amortization expense that the government will allow a company to deduct from its income for tax purposes. This deduction can be done over several years which can help in spreading your taxes.

6.       Pay yourself

When money is tight, the focus for business owners tends to be paying business expenses, and paying yourself is often overlooked. If you’re not paying yourself, you’re not factoring in all your total business.

Do small business owners need financial advisors?

Hiring a financial advisor is not necessary but highly recommended. If you’re struggling to handle your business finances, a financial advisor might be your solution. They will ask questions about your business that you might not have thought of, spot business trends, advise on ways to improve profitability, and help you prepare for retirement.