Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.
If you’re an entrepreneur new to the business world, nothing matters more than managing your organization’s finances properly. You began your enterprise intending to make a profit and contribute a valuable product or service to the world. Both are only possible by practicing sound money management techniques.
Even if you’re never managed finances for a business before, money management is relatively simple to learn. Your company’s finances resemble your personal budgeting needs in many ways, with perhaps the exception of a greater array of expenses. Here are eight tips for managing your organizations’ finances successfully.
1. Design a Document Management System
Unlike your personal finances, monitoring your company’s funds involves more than merely balancing a checkbook ledger. You need a way to organize your documents from the onset to have everything ready in the case of an audit. The IRS has the legal authority to seize your business and its assets — not a penalty you want to face.
Determine what software you’ll use to track your business’ income and expenses. Keeping hard copies of invoices and bills leaves them vulnerable to natural disasters and kills countless trees. Switch to paperless billing and utilize scanning technology and secure cloud storage to keep copies of important documents available with a few mouse clicks.
2. Assign Staff — or Make a Schedule
Depending on your budget, you may choose to hire a bookkeeper or even an accountant to handle your business finances. If you’re a one-person show, hold yourself accountable to a schedule of when you will take care of bookkeeping tasks. Dedicate at least one to two hours weekly to managing your company’s money — or more if you have multiple accounts.
If you do hire staff, touch base biweekly or monthly to review financial accounts. Doing it yourself? Stick to your schedule — it’s much easier to keep track of income and expenses each week than to let receipts pile up into a seemingly insurmountable mountain of work.
3. Make a Budget
You’ll need to create both a monthly and annual budget for managing income and expenses. While a business budget will look a little different from a personal budget, similarities do exist. For example, if you have a retail storefront, you’ll have expenses like rent, electric and water just as you do at home.
When creating your business budget, watch for often-overlooked expenses. It’s easy to pay for things like staples and printer paper out of petty cash, but you could potentially lose an important tax deduction for supplies. You’ll also need to budget for incidentals such as employee sick leave time if you hire staff.
4. Establish an Emergency Fund
Just as your personal emergency fund protects you in the case of financial catastrophe, this reserve serves the same purpose in your business. One way many businesses end up in hock with the taxing authorities, for example, is failing to remit quarterly withholding to IRS on time. They figure they’ll use the money to cover shortages now and replace it later. Once penalties and interest add up, these business owners find themselves drowning in past tax debt with little recourse.
Likewise, many business owners who lack the funds to pay for expenses dip into their personal finances to stay afloat. Some even take out second mortgages and risk losing their personal residence. Those with staff often find their best workers jumping ship if they miss a paycheck. Instead, an emergency fund provides security against such eventualities.
5. Evaluate the Necessities
Do you need a separate office in a downtown high-rise for your tech startup? Or can you do as much work at home, saving you tens of thousands in rent annually?
It’s natural to want the best. However, slow and steady wins the race when it comes to the business game. Start small with only the necessities. You don’t need to go into debt to install a keg cooler and a foosball table at your office — wait until profits justify the expenditure.
6. Shop Around for Loans
Sometimes, you may choose to leverage the power of a small business loan to get off the ground. If so, make sure you’re getting the best deal. Take your time shopping around.
The Small Business Administration offers loans at the best rates, although you need to meet specific criteria, including proven industry knowledge. Other options exist if you hope to invest in a franchise or break into a riskier enterprise. Crowdfunding and raising money from family and friends result in few — if any — interest payments in many cases.
7. Balance Risk and Reward
As the cliché goes, there’s no success without some degree of risk. However, if you run a business, your job is to mitigate these risks.
One way you can do so is to create multiple income streams, some more secure than others. For example, if you have one app proven to bring in money, you can mitigate risk by enhancing the current product while simultaneously launching a new one. Another way to evaluate risk is to produce a risk quadrant to evaluate what you know about your decision before cementing your course of action.
8. Re-Evaluate Financial Goals Regularly
At least twice a year, sit down and re-evaluate your financial goals. These aims may change with time. When you’re first starting, you may strive toward earning enough income to quit your day job. As your business grows, your goals may shift to making sufficient profits to hire additional staff or even open a new branch.
Managing Your Business’ Money for Beginners
Learning how to handle business income and expenses is a worthy goal to work toward, but there’s no secret to sound financial sense. Many of the principles for managing your personal money spill over into this arena. By following the tips above, you can set your organization up for economic success.