Finances cause more headaches and stress than anything else when running a small business. You are always juggling cash flow, tracking income and expenses, paying taxes, and ensuring you don’t go broke.
With so many priorities competing for your limited time, it is incredibly easy for bookkeeping and money management tasks to fall through the cracks amidst operational fires. Before you know it, you are hit with annoying accounting surprises, late penalties, and other financial woes.
Separate Business and Personal Finances
Mixing your company and personal income/expenses is a recipe for disorganization and inaccuracies come tax season. Avoid this headache by opening dedicated bank accounts and credit cards used exclusively for business transactions.
Having this separation creates cleaner records and simplifies tracking/categorization right off the bat. You can glance at those business accounts and see the full financial picture without sifting through personal charges.
Track Income and Expenses From Day 1
Establishing meticulous bookkeeping habits is crucial for avoiding future taxation migraines. Even if you are just a solo contractor initially, track every income payment received along with related business expenses simultaneously as they occur.
Create a simple Excel file or speak to a company like Modest Custom Software Development about software for small business to record and categorize transactions weekly without fail. Good documentation becomes invaluable for filings.
Automate Invoicing and Online Payments
Make it easy to get paid by automating invoicing and enabling online payments. Some cloud-based systems let you send professional invoices at the click of a button while letting clients pay instantly by credit card.
You will get revenues faster with less hassle tracking people down. Plus, these systems double as bookkeeping solutions, creating tidy digital records of all billables and receipts automatically.
Monitor Cash Flow Closely
While being profitable overall is great, lack of liquid cash reserves can quickly cripple even successful small businesses experiencing temporary slumps or growth investments. Avoid this by budgeting and monitoring cash flow meticulously.
Schedule automated reports or dashboards displaying your near-term runway based on projected income minus expenses and fixed costs. Get ahead of any crunch periods through early cash management strategies.
Leverage Low-Cost Bookkeeping Services
Accurate bookkeeping requires constant attention and expertise many founders lack the time or desire for. Explore cost-effective online bookkeeping services to keep your books pristine, minimize mistakes, and ensure taxes get filed properly.
Always Set Aside for Tax Obligations
Few small business disasters are as distressing as being hit with massive tax penalties and interest for underpayment or late remittance. As income arrives, immediately transfer sufficient portions into a dedicated savings account representing your estimated tax burden at varying rates. Most bookkeeping packages automate these calculations too.
Make Tax-Savvy Investments
Stay proactive in maximizing your deductions and tax credits through smart investments and spending. Cloud-based accounting packages help optimize this. Examples include maximizing retirement plan contributions, taking the home office deduction, deducting business mileage, and other tax-advantaged avenues.
Start Building Credit Actively
While personal and business credit are initially intertwined, begin establishing your company as a creditworthy entity from day one. Apply for a dedicated business credit card and other credit lines using your EIN, not your Social Security number.
Maintaining pristine on-time credit behavior on those accounts as sales ramp up means you build a strong business credit profile. This positions you for accessing affordable lines of credit, equipment financing or small business loans to facilitate expansion when needed.
Conclusion
Financial management doesn’t have to be a dreaded chore. Establishing simple processes, documentation habits, and affordable support from day one means you will maintain control over your finances and tax obligations instead of living in fear of the next surprise.
