Managing your business finances is critical to keeping your business running smoothly and making informed decisions. Neglecting your small business financials could mean losing out on valuable tax deductions, having problems getting loans, and making business decisions that create more problems.
If you’re ready to start managing business finances better, this guide offers seven tips to get organized and build a foundation for your business to grow.
- Separate Your Business and Personal Finances
Many new small business owners use their personal credit cards to cover business expenses and deposit business revenue into their personal checking accounts. While that might be convenient at first, it can lead to serious complications.
For example, the IRS allows business owners to deduct business-related expenses, such as business travel and supplies. However, you have to provide proper documentation to support those deductions. If the IRS audits your return and you don’t have a clear record showing which transactions were business-related and which were personal, you could lose out on those deductions.
To avoid that headache, open a business bank account. You can usually find one that offers free checks, no monthly maintenance fees, and unlimited transactions.
- Pay Yourself a Salary
As a small business owner, you may pay yourself last or even forgo a paycheck entirely to conserve cash and put more money back into growing the business. But paying yourself from the beginning — even if it’s just a few hundred dollars a month — has advantages you can’t afford to miss. For one, it helps you pay your personal expenses and build your savings. That’s crucial if the business doesn’t work out.
How you pay yourself depends on how your business is structured, so talk to your accountant or do some research into taking a salary versus a draw.
- Follow accounting best practices
One of the first financial decisions you need to make in your business is choosing between cash and accrual basis accounting.
Cash basis accounting is based on your company’s cash activity. It records revenue when money comes in and expenses when money goes out. Accrual basis accounting is more complex because it tracks revenue when earned and expenses when incurred, regardless of when cash changes hands.
- Choose an accounting software
Some companies might be able to manage small business finances in a notebook or spreadsheet, but accounting software can help streamline your business financials and make tracking income and expenses much easier. Plus, your accountant will be happier to get tidy business financial statements than a box of receipts at tax time.
- Build Your Business Score
Your business credit score impacts everything from qualifying for business credit to landing contracts and the rate you’ll pay for business insurance. So it’s important to regularly check your business credit report.
To build your business credit, start by registering for a free DUNS number through Dun & Bradstreet. Use your DUNS number when applying for business credit cards or trade credit accounts. Then make on-time payments to show business credit bureaus that you’re reliable.