Starting you own business is the dream of every aspiring entrepreneur. But what probably isn’t anyone’s dream is the paperwork and accounting that goes with running your own business. If you are not versed in financial accounting practices or financial management and find these tasks daunting and burdensome, here are some best practices that you should consider implementing to make your life easier and the management of your startup’s finances bearable.
Invest in Off-the-Shelf Accounting Software
One of the things that every businessperson needs to understand, regardless of his or her position or number of years in business, are the books and records of the company and how money flows in and out. This is known as your record of cash flow and is an important indicator of how revenues are taken in and expenses are accounted for in the business. A statement of cash flow looks at the beginning balance of the business at any point in time (usually at the beginning of the month) and watches how credits and debits are applied to that balance toward the end of the month.
Knowing your cash flow helps you understand when you get paid for the goods and services you provide, when you pay for them, and what balances you maintain in your bank account at a given point in time. If you are not versed in how to construct one of these statements, one of the off-the-shelf accounting systems can assist you in tracking your company’s cash flow. This in turn will help you get a better sense of the financial management of your business’s accounts and better control the flow of cash.
Assign a Percentage of the Business’s Profits To Future Commitments
As a startup business, it is often too easy to see profit, all profit, as earnings that need to be spent right away on the business in order to grow and expand. This may seem like a good idea until the growth that you are striving for hits a snag and you find yourself needing a financial reserve to fall back on to bring the business through the tough times.
You need to learn to plan ahead in your business. “Tithe” a percentage of profits earned on a monthly basis toward future commitments, such as taxes and the retirement of any long-term debt. Setting money aside in an interest-bearing escrow type account gets it away from your hands to use and spend and allows you to meet your commitments more comfortably as they arise.
Work with a Trusted Banking Partner
At some point you need to develop a good relationship with a banker for your business account and other financial matters. Even if you do not intend to take out a loan to finance your business, having a relationship in place and building on such will help you stay on top of products and services available to your small business, and that can help you get ahead as the business begins to grow. As you develop a need for payroll services, tax management services, equipment loans and lines of credit in order to free up other business capital, a good relationship with your banker will help getting access to these products and services easier for you.