Getting your small business finances organized and squared away from the get-go will reduce your stress, give you a clear picture of your business’s financial health, and make things easier during tax season.
Whether you’re just getting started with your financial statements, want to do a little spring cleaning in your business, or are getting your finances in shape to sell your business. Running a small business can be a challenging and complex task, but keeping your finances in order is a crucial part of ensuring its success. Not only will this help you keep track of your income and expenses, but it will also help you make better decisions for your business in the long run. Here are 8 solid ways to help you get your financial records where they need to be.
1. Keep Accurate Records of all Transactions
For tax purposes, it is mandatory for all small enterprises to maintain precise records of their financial flow. Monitoring other metrics of business success is also essential for proper management. Automating as many of these procedures as you can to eliminate the need for human labor is the greatest way to guarantee accurate record-keeping.
- Any revenue that your company receives should be recorded right away.
- As many purchases as you can be made via electronic payments to keep track of business outflows.
- All salaried and hourly employees’ work hours were tracked using methods that had no negative effects on their productivity or morale.
- Keep additional records on your daily customer count in addition to their purchase amount.
- Additionally, having accurate records makes tax preparation and filing simpler.
- Maintaining accurate records is crucial for compliance, ensuring that your company is functioning within the law, and reducing the chance of an audit.
2. Use Online Tools and Software to Streamline your Financials
There are many online tools and software options available that can help individuals and businesses streamline their finances. Some popular options include accounting software like QuickBooks and Xero, budgeting and expense tracking tools like Mint and YNAB, and invoicing software like Freshbooks and Zoho Invoice. Many of these tools can connect to your bank and credit card accounts, automatically importing transactions and making it easy to categorize and track your spending. Additionally, some software also has built-in financial reporting features, allowing you to generate balance sheets, income statements, and other financial reports with just a few clicks.
Another option is to use cloud-based accounting tools, which provide a more efficient and automated way to manage invoices, expenses, payroll, payslips and other financial tasks. Cloud-based solutions, such as Xero and QuickBooks Online, allow you to access your financials anytime, anywhere, and work collaboratively with your team, accountant, or bookkeeper in your workstation.
Another alternative is to use practice management software for accountants, which offers a more efficient and automated method of managing the financial team and financial documents. Accounting practice management software like Financial Cents, allows you to monitor your accountants’ tasks, automate accounting workflow, collaborate with your team, and access your financial documents anytime.
It’s worth noting that each software has its own capabilities and pricing model, so it’s important to research and compare different options before making a decision, and see what’s the best fit for your organization and budget.
3. Be Sure to Keep your Business and Personal Finances Separate
When you first enter the realm of digital entrepreneurship, you might be tempted to conduct business using your personal accounts. Since starting a business is a gamble, you might wait to open separate accounts until you are certain that you will be successful.
Although it can seem sensible, it’s best to keep your personal and corporate finances separate from the start.
One of the main reasons is that mixing the two might cause your personal liabilities to become company liabilities, which can have a disastrous effect on your life. In addition, keeping your finances separate will make your accounting records simpler. You’ll not only have a more accurate picture of your company’s financial situation but it also makes things simpler in the event that you’re ever audited. When you need quick and precise accounting, you don’t want to have to go through a tonne of personal and company activities.
4. Organize Your Pay Stubs and Other Important Documents
Keeping your pay stubs and other important documents organized will help you keep track of your income and expenses. It will also make it easier for you to file your taxes and provide evidence of your income and expenses if necessary.
Organizing your pay stub and other important financial documents is an essential part of managing your finances and ensuring that you have easy access to the information you need. One good way to do this is by creating a filing system that is both easy to use and easy to understand. This could be a physical filing cabinet or a digital one using cloud-based document management software.
For the physical filing:
You can use folders and file folders to organize documents by type, such as payslips, invoices, bank statements, and tax documents.. You can also use a label maker or hand-write labels to clearly indicate the contents of each folder. Additionally, you should consider creating a backup copy of your important documents and storing it in a secure location, such as a safety deposit box or fireproof safe.
For the digital filing:
You can use cloud storage services like Google Drive or Dropbox to store and organize your documents, create folders and subfolders for different types of documents, and tag or label the files for easy retrieval.
It’s also important to regularly review your documents and update your filing system as necessary. For example, you should shred or properly dispose of any outdated or unnecessary documents to keep your system organized and your personal information secure.
5. Financial Statements Should be Reconciled
How crucial it is to balance the account at the end of the month is one of the first lessons young adults learn when they open their first bank accounts. Before debit cards, bank reconciliation involved comparing the entries in cheque books to the transactions listed on monthly statements.
Even though you could still be writing business cheques, reconciling your company’s financial statements has become simpler than ever because of the world’s expanding digitalization. To keep track of all of your transactions, you should ideally maintain an up-to-date balance sheet or profit and loss statement.
To ensure that everything is appropriately accounted for, compare your balance sheet to your bank and credit card statements. Gather all of your receipts and compare them to your accounts to see if there are any refunds or instances where you were overcharged.
6. Start with the Financial Documents you Need
Small business financial statements can tell a lot about your company’s financial health. You should be familiar with these three basic financial statements.
The balance sheet
The balance sheet displays the assets and liabilities of your company as of a particular date. It also displays your equity, which is the amount you would have left over after selling all of your company’s assets and paying off all of its debts. Equity is the difference between assets and liabilities.
Your balance sheet data will help you decide whether your business can pay off debt, whether you can add assets, and whether you can borrow money.
Statement of profit and loss
The income statement, also known as the profit and loss statement, displays the revenues, costs, and profit or loss for your company for a specific time period, typically a month, quarter, or year.
Your profit and loss statement can be examined to assist you to identify the profitable areas of your company. When considering whether to invest in you or lend to you, lenders and investors both go over your profit and loss statement.
Statement of cash flow
A cash flow statement lists all the cash transactions that have taken place in and out of your company over a period of time. You can evaluate how much cash you have available to pay payments and expand your firm by analyzing your cash flow statement.
You could find it more difficult to manage your finances if your workspace is chaotic and untidy. So that you can quickly access the files and tools you need to manage your finances, and make time to routinely clean and arrange your workation.
Keeping your small business finances in order is crucial for the long-term success of your business. By implementing the above tips, you can help ensure that your finances are accurate, organized, and easy to manage. Remember to keep accurate records, use online tools and software, create a budget and stick to it, organize your pay stubs and other important documents, regularly clean and organize your workstation, and seek advice from a professional. With a little bit of effort and discipline, you can have your small business finances running like a well-oiled machine.