You may start your business to indulge your love of crafting, vacation planning, or home remodeling, but money matters will become a major part of your venture no matter what industry you’re in. Whether you love the challenge of balancing a tricky budget or you abhor the numbers game, finances are something you can’t ignore.
The best way to approach your business finances is with a clear-cut plan. Establish essential policies and processes from the earliest days of your business venture for the best chance of long-term success. Getting your finances in order may seem like a tricky task, but you can simplify things dramatically by taking a smart and organized approach.
Separate Your Accounts
One of the first steps you should take as an entrepreneur is separating your business and personal finances. If you’re running a one-person business, it’s tempting to keep your cash flowing through a single account, but this will only confuse your calculations later. Keep separate checking accounts, open a business credit card, and consider establishing an S Corp or limited liability company (LLC) for added liability protection.
Draft Payment Policies
If your customers don’t pay for your products and services at the time of purchase, set clear payment policies that state when and how you’ll receive your money. Don’t wait until you’ve completed a job to figure out how you’re going to draw up an invoice or track outstanding payments. Incoming cash is crucial to any venture. Draft payment policies that specify when your customers must submit payment, how much each payment will be, what types of payment you can accept, and what course of action you’ll take if payments are late.
Set Up the Right Software
You don’t need a full-time accountant to keep your business finances in order. The right software solution can do the job for you while minimizing your expenses in the bargain. Carefully consider everything you need from an accounting program to make sure you’re investing in the best product for your needs.
An accounting program like Sage 50 offers tools for managing vendors, generating quotes, tracking inventory, following projects, automating purchasing, forecasting cash flow, and monitoring credits and returns. This type of comprehensive solution takes you beyond simple income and expense monitoring so you have a more comprehensive view of your financial situation.
Identify Seasonal Slumps
Many businesses face seasonal fluctuations in their cash flow. If you manufacture winter wear or service swimming pools, you’ll have a fairly clear-cut calendar for your busy season. Other businesses see subtler changes in their cash flow that coincide with things like shoppers getting their tax returns. Get to know your industry and your customers well so you can predict when you’re seeing increased or decreased activity as a result of seasonal factors. This will help you balance your finances accordingly so you can stockpile in good times and live off your excess when sales are lean.
If you know that a particular fluctuation coincides with seasonal factors, you can use the slower periods to tackle jobs like taking inventory. If you’re not familiar with the cause for a sudden slump, however, you’ll need to take a different approach, looking deeper into the source of the issue to make sure the decrease in sales is only temporary.
Maintain Strict Budgets
Keeping detailed budgets is second nature to successful entrepreneurs. If you don’t have a clear forecast of how much you expect to make and where you’ll spend it, you have no way to determine whether you’re meeting, exceeding, or falling short of where you need to be. Your budget should specify how much of your income will go to each business activity, including manufacturing, marketing, packaging, shipping, and even paying your own salary. Revisit your budget often and adjust as needed to make sure your final numbers are always in the green.
Don’t let your business finances fall to the wayside or get out of hand. Keep careful track of your numbers from the beginning, and you’ll have all the information you need to streamline your operations, maximize your earnings, and harness long-term business success.