8 Ways to Manage Your Business Finances
It’s crucial to have a flexible business plan that you can adjust when economic conditions and unforeseen circumstances negatively affect your success.
As a business owner, it’s important to track and manage your finances to remain profitable. Although you can hire an accountant or an advisor to assist you, you can save money in the early phases of your business by performing most of the financial tasks yourself. It’s crucial to have a flexible business plan that you can adjust when economic conditions and unforeseen circumstances negatively affect your success.
1. Using Financial Software
Keeping your business running requires diligent management skills and keen attention to detail. Your expenses, assets, sales, and profits determine your ultimate success, and with premium software, you can track your company’s progress without hiring a professional. For instance, you can install project accounting software to view all your business data in one place. You’ll spend less time calculating your labor cost, operational expenses, and delinquent accounts when you rely on software that performs the tasks for you.
2. Creating Budgets
When you develop a business plan, it’s important to create a flexible budget that can be modified when business activity fluctuates. One helpful technique is to create multiple budgets. When an economic downturn or crisis disrupts your operation, you can adjust to the new conditions by replacing your budget with one that is more efficient and accepting of drastic changes.
3. Determining Payment Types
Several business owners have changed how they receive payments from sales or services when the market experiences a downturn. Although a majority of businesses accept credit card and debit cards, some companies have looked into using cryptocurrency as a payment option. Before you commit to a new payment system, you should determine if alternative methods are viable in your business plan.
4. Separating Your Accounts
To manage your finances effectively, you should separate your business account from your personal account. Avoid paying for business expenses from your checking account and limit the number of managers who have access to company finances. In the case of a creditor lawsuit or IRS audit, you’ll need separate accounts so that your wealth is not affected.
5. Determining the Accounting Method
Owners of small businesses prefer to use the cash method of accounting that records payments when cash is received. For point-of-sale transactions, the cash method is more practical and should be used consistently. However, if your business expands and you incorporate larger accounts, the accrual method is more efficient. The accrual method accounts for sales and costs when you receive an invoice. You may not withdraw or accept funds for several days or weeks with the accrual method.
6. Using a Separate Tax ID
Like your business accounts, you should separate your personal tax ID number from your business. For liability concerns, you don’t want your personal wealth tied to a lawsuit or audit. With separate ID numbers, your business will be the only focus of a legal issue or IRS investigation. Even as a sole proprietor, you should keep your business taxes separate from your liability.
7. Tracking State and Local Taxes
Each state and municipality impose different taxes on business activities. If your business operates from one location, your taxes will be much easier to track. However, if you have several locations across the country, you’ll have to keep track of each location’s tax requirements. For international business, you have to determine how foreign countries’ taxing system affects your operation. If you fail to monitor the multitude of tax payments required by your company, you may incur harsh penalties and fees that can decrease your profits.
8. Securing Your Network
To minimize the threat of cyber-attacks, you can ensure that your network is well protected by security software. Likely, a significant portion of your company’s transactions occur online, and the prevalence of criminal activity online increases each year. Cybersecurity should be a top priority in operating your company. Whether your operation is large or small, hackers don’t discriminate on the size of a business and will drain accounts or insert viruses whenever they find an unprotected network. Managing your finances may seem like a challenging undertaking, and you’ll probably experience some problems in the beginning. However, if you follow the previous suggestions, your business will prosper.
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