Running a business is a full-time job and often requires a business owner to fulfil multiple roles, including managing small business finance.
While monitoring finances isn’t one of the most exciting roles of business ownership, it’s one of the most crucial in determining the success or failure of any business.
Most new business owners and entrepreneurs learn the basics of funding, bookkeeping and finance as they go. To help simplify that, here are six quick Do’s and Don’ts of small business finance to keep your business’ financial health in check:
1. DON’T Mix Personal and Business Assets in Your Small Business Finance
It doesn’t matter how big or small you are, it’s important to keep these two separate and will save you a lot of headaches with small business finance down the line. If you’re just starting out, then you should have pretty clean finances so separating these out will be relatively easy.
Create a separate business account. This will give you a separate credit history specific to your business and will (probably) give you better borrowing power when looking for small business finance options. Having this separation will also make tax time much easier to deal with. Tracking deductible expenses becomes much simpler with a business account.
If you’re a sole trader or independent contractor, it’s probably a good idea to deposit a percentage of your pay into a business account. This can help cover tax obligations at the end of the financial year.
2. DO Invest in Technology
There are heaps of business apps and software that can automate a range of different processes, making small business finance easier and saving your business a fair chunk of cash. A study done by Converga found that businesses using digital invoicing solutions had 88% lower invoice processing costs and 75% faster invoice processing times.
Using a digital accounting platform is one of the best things you can do to improve and simplify your small business finance management (and make it considerably easier on yourself). Online accounting software like Xero, MYOB or QuickBooks make it really easy to track all aspects of your business finances, including bank feeds, payroll and invoicing.
If your business uses an electronic payment platform, then look for accounting software that it can integrate with. Most services can integrate with each other, but always double-check before you choose one. This will make managing sales transactions seamless.
Most businesses won’t actually need all of these different apps, but choosing the right ones for your business will go a long way toward simplifying your small business finance tasks.
3. DON’T Neglect the Tax Office
Tax time probably isn’t a small business owner’s favourite time of year; in fact, most business owners dread it. However, now more than ever, it’s important not to neglect your business tax obligations. The Australian Tax Office is coming down harder on businesses with overdue tax debt and penalties can be significant.
Keeping your tax obligations in mind throughout the year will make things much easier when the time comes to complete your paperwork. Cloud accounting software can simplify this process, reducing errors and time spent on tax returns.
The Australian Tax Office has a bunch of resources to help with tax returns, but it’s also worth considering whether to hire a tax professional.
If your business already has outstanding tax debt, it may make sense to understand your options for managing ATO debt or consider funding options that avoid unnecessary penalties and cash flow strain.
4. DO Consistently Review Your Business Plan
Your business plan is like your roadmap, but you shouldn’t just set it once a year and only check it every few months. There will inevitably be road bumps and wrong turns, so it’s important to consistently review and update your business plan. This will help you get a clearer picture of your small business finance requirements.
Your business plan should include things like:
- Sales forecast
- Projected income analysis
- Budget projections
- Break-even calculations
There will be certain items, such as budgets, that you’ll be checking regularly, but it’s important to have long-term financial goals and a strategy for how you plan to achieve them.
You may set your financial plan at the beginning of the year but then experience rapid growth six months later. Reviewing your projections regularly will help keep your business on track.
5. DON’T Fall Behind on Payments
Seems pretty obvious, but staying on top of your payments goes a long way toward maintaining a healthy cash flow and ultimately keeping your business running. Falling behind on payments to suppliers, lenders and even the ATO can accumulate debt, interest and damage your credit score.
The only way to keep on top of payments is by staying organised and monitoring your cash flow. Businesses also commonly use cash flow funding solutions or business overdrafts to smooth out short-term cash shortages.
6. DO Monitor and Measure Performance Regularly
There’s no point putting all your money into running an awesome business if you don’t know what’s making it so awesome. As a business owner, it’s crucial to monitor the movement of your money and know you’re getting a return on your investment.
Continually monitoring your business performance allows you to compare against market trends and previous performance. Historical financial data can also help project future revenue, expenses and cash flow.
Having historical financial data also makes it easier to review operational efficiencies. Before investing heavily in growth initiatives, it can help to understand how to calculate ROI on a business loan.
Running your business is a round-the-clock job. Keeping track of your finances should help you save money, but more importantly, help you become more efficient with your time too.
We know how valuable your time is, so when the time comes to upgrade equipment, expand into new markets or access additional cash flow, give our friendly Brokers a call on 1300 736 780. We take the legwork out of finding the best deal in the marketplace so you can spend your time where it matters.
