Most small business owners are financial experts – they may have MBAs, have a lot of experience in the private sector, and have a strong literacy in all things about managing small business matters. However, there are those with limited knowledge when it comes to managing business finances. Managing finances for any business may be an overwhelming experience, especially if a lot of planning and allocation of resources is required. You need to get right the aspects of planning, accounting, and financial management.
Here are some tips to go by;
Separate your personal and business finances
Before you can get down to managing the finances of your business, you need to take an important first step, which is having separate accounts for managing your finances from business finances. Separating your business and personal finances is essential to ensure you don’t get mixed up on tax issues. With these accounts kept separate, you will have a much easier time managing finances and bookkeeping. Your finances will also be protected in case you face legal issues.
Open a business bank account
With all that said, you can separate your personal and business finances when you open a business bank account. It is also important to ensure you choose the right bank account for your business. Key issues you must get right when choosing a bank account. Look at issues such as monthly service fees, including transactions, wiring allowances, cash deposit limits, and online banking capabilities.
Get a business credit card
Another important step towards managing your business finances is to separate your personal and business finances by getting a business credit card. You will be able to make purchases for your business with this form of a card. With this card, you will also be able to simplify your bookkeeping and establish business credit. You can choose to get a business credit card from the same provider as your business bank account or explore alternative options.
Understand business accounting
The next important step to managing finances for your small business is to understand the basics of small business accounting. This may seem to be overwhelming and a daunting task, especially if you have never taken accounting classes. However, there are a couple of common accounting terms you can easily learn and place yourself in a better position in understanding accounting software. You need to understand the meaning of terms such as gross revenue, expenses, net profit, cash flow, breakeven point among others.
There are some very important business accounting documents you need to understand as well. The first is the balance sheet. A balance sheet is essentially a document that stipulates the financial position of a business at a given moment. It will list the business assets and liabilities as well as the equity if a company. You need to have a balanced balance sheet, one in which total assets of a business equals liabilities plus equity.
Other important statements include income statement – which is also called profit and loss statement, and statement of cash flows, which keeps a reflection on the inflows of revenue and outflows of expenses resulting from your business activities.