How Small Business Owners Can Keep Finances Organized

Willy Beamen — Wed, 02 Oct 2019 17:25:50 +0000

Owning a small company is an arduous learning process – one that most entrepreneurs face alone. So, in this blog post we’ll look at how small business owners can keep finances organized.

Learning as you go is never simple, and there are many elements of day-to-day business that need to be mastered. This is especially true when it comes to keeping the finances in order.

It can be challenging to keep your company’s finances under control and organized. But with a bit of know-how and some expert advice, you will be able to understand the data, technology, and procedures you require. Some of those are:

Get excited and organized

At first glance, excitement and organization don’t seem to go hand in hand. However, when you’re excited about something, it makes the task at hand so much more doable, enjoyable and just easier in general. With this in mind, there are a couple of things you can do to be more excited about organizing:

Work out – Exercising before you start a task releases endorphins and makes you feel more energized. According to some studies, even a brief exercise for 20 minutes enhances information processing and memory function.
Write down every task you need to do – Just writing down everything you have to do, particularly the tasks you’re feeling dread about, can help your brain understand what it’ll take to achieve them. Often, we become overwhelmed simply because we build up a task in our minds. Then, we have a hard time processing these “complex tasks”. Writing them down makes the processing part easier.
Set a time limit – For example, with a 20-minute mark. Then see how many tasks you can complete in this amount of time. Racing against the clock pushes our minds to go beyond their usual mental capacity.

Separate your business and personal finances

One of the most important aspects of owning a business is maintaining accurate records of your expenditures and income. This is the only viable way to precisely determine your business’ performance. For this reason, separating your business finances from the personal ones is a must. Otherwise, you may end up with serious complications.

For instance, when it comes to your business credit, you may be able to receive a business credit card based on your personal credit history alone, but you will have to separate business credit profile to secure bigger business loans or establish vendor lines of credit.

Yes, it is feasible to go through a personal loan application process in order to finance your business, but sometimes, opening separate lines of credit for the company simplifies things. The best way to have credit for your organization is to open a business credit card, but that requires a personal guarantee. In other words, you will be personally responsible for any debts incurred by the company in case of default. You can also have a separate checking account to help track your business income and costs.

Utilize what’s free

Besides planning your budget with spreadsheets, there are numerous free finance tools out there you can use to organize and track your enterprise’s financial goals. The first one is called Personal capital. This free-to-use platform provides you with insights on cash and net worth, and has, for the last few years, dominated the space of wealth management tools.

It also features calculators, reports, as well as some paid services if you require additional help. Even if the net worth of your company is negative, it’s still fundamental to monitor the overall picture of its cash and financial health. This will keep you motivated and conscious of what you’re doing with the money and what results your efforts are creating.

The second free finance tool at your disposal is Mint. A preferred choice by many, this finance app will automatically update and classify your transactions, ultimately showing your expenditures in real-time. With it, you can also monitor bills and set budgets that send alerts if you’re getting dangerously close to your set limits.

Build a world-class finance team

Creating a world-class finance team is much more than building a back-office group that counts the money, reports numbers and ensures internal control are working. It means having a finance department that sets a standard of excellence to be followed by others. While there is no standard procedure for developing a world-class finance function, the following steps can help you achieve the desired result:

Examine your current staff’s skills and identify the skills you need now and the ones you will require in the future.
Evaluate the responsibilities and roles to determine the best fit within your department. Pinpoint the gaps to determine needs.
Consider team workloads and the effects of transferring workload around.
Create two organizational charts, one for the current phase and the other for the future.
By now you will need to bridge the gap and bring in trusted advisors from within the company to give feedback and buy-in.
Think about discussing with your current senior team members (that you wish to retain) about what areas to improve, how to better communicate and what additional technical knowledge they may need. This is a time when you “map the path forward”.
Change individuals who do not suit the new structure.
Start tracking the finance staff results against key position initiatives (KPI’S).
Innovate, and then innovate some more. In other words, concentrate on regular improvements, progress through the workforce, teamwork and collaboration and the use of automation and technology.

Adopt and accounting strategy and stick to it

In essence, there are two standard accounting methods to opt for: accrual basis accounting and cash basis accounting. Both accrual and cash accounting are platforms for companies to monitor expenses and acquire insights from reports, but there are some key differences to consider before you decide which one is best for you.

Basically, cash accounting recognizes expenses and revenue as they occur, kind of like your bank account. When you spend cash, it’s removed from your account and when you make cash, your bank balance increases. This accounting method will provide you with an accurate picture of what’s in your account but it does not consider what cash is coming your way, nor what costs will be billed to you in the future.

Accrual accounting, on the other hand, recognizes costs and revenue as they’re billed and earned. This accounting method tends to make more sense for companies that invoice their clients rather than recording at the time of service.

Although you can change the method of accounting that you utilize, you’ll need to go through the process with the IRS which can be more of a hassle than sticking to one or other from the beginning.

Yes, running and owning your own small enterprise is exciting, but it can also be quite frustrating, particularly in regard to handling finances in a profitable manner. Don’t allow your business to suffer because of poor cash management. Use the tips given here and provide for your venture a bright future.

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