Being an expert in finance is not usually a top priority for someone starting or running a small business. Here are five tips to make sure you’re handling your finances according to best practices:
1. Record-Keeping
There are two main reasons to keep track of the finances of your business. First, you need to maintain compliance with government and other regulatory agencies, like filing tax returns. Second, you need to use the information to measure your performance to manage the day-to-day cash flow of the business as well as find ways to improve your business.
Rather than learn how to do bookkeeping, buy an accounting program, and learn how to manage the detailed transactions of that system, start-up businesses should look to outsource their accounting to an outsourced bookkeeper who updates the books once or twice per month on their software, preferably hosted so you can access it whenever you like. You can often get this done for $200 or less per month.
2. Banking Relationship
The last time you walk into your bank should be when you set up you business bank account. Utilize online technology to do everything else, and you’ll save a lot of time and hassle. There is certainly some value in building a more personal relationship with your bank, but that only comes in handy if and when you need a loan.
3. Customer Payments
Make it as convenient as possible for your customers to pay you. Accept checks, credit cards, EFTs, and any other way that makes it easy for your customers to pay. Any barrier your customers face to figuring out how to pay you will result in lower sales and even lower collections. Stop worrying about the costs of some of these services and accept them as a cost of running a good business.
4. Taxes
Please pay them, and pay them on time. The government and other agencies are the wrong institutions from which to borrow. They charge huge penalties, usurious interest rates, and they usually have stronger enforcement rights that allows them to price any corporate or LLC veil you’ve put in place to try and separate your business and personal affairs.
5. Benchmarking
Do not operate your business in a vacuum. What are your competitors doing? How long does it take for them to collect from their customers? What are their gross and net margins like? How do you compare? You can get this type of competitive information and more from your bank or from other online resources and trade associations specific to your industry.
Ken Kaufman is the author of Impact Your Business: An allegory of an entrepreneur’s
journey to clarity, cash, profit, family, and success http://cfowise.com/impact-your-business. Ken, an award-winning CFO, has over a decade of experience helping small business owners and entrepreneurs attain the clarity they need to maximize their financial success. His has credited with creating the Six Scoreboards Every Business Needs. In addition to serving as an outsourced CFO to eleven entrepreneurial ventures, Ken writes regularly for American Express OPEN Forum and teaches New Venture Finance at a local university.
Implementing these five things will put you on the path to building a financially healthy company.
Awesome tips, Ken! Thanks so much for sharing. I especially appreciate this point:
“Any barrier your customers face to figuring out how to pay you will result in lower sales and even lower collections. Stop worrying about the costs of some of these services and accept them as a cost of running a good business.”
A couple years ago my nutritionist asked me for some business pointers and I told her that the first thing she should do is start taking credit cards.
There were so many sessions where I wanted to spend more money by buying extra snacks, vitamins, etc. but because she only took cash or check I refrained. I figured if that was the case for me, a lot of her clients probably felt the same way.
She was so excited and said she was going to do it, then a few weeks later she told me she decided not to, because her partner didn’t want to lose the money on service charges and he also didn’t want to have to declare that income. *headsmack*
I can’t imagine how much money they left on the table by thinking small.
Carmen,
Thanks for your comment and such a relevant, poignant example. I guess “hobbyists” masked as business people will always fight certain improvements to their “hobbies”, but that thinking is short-sighted. Rather than pay taxes on the extra income, find a way to invest that extra income in a tax-advantaged way either into your “hobby”, your business, yourself, or your family. Avoidance of paying tax should seldom be a reason to impede business performance–there is always a way to plan around tax liabilities.
Your insights on this subject are very valuable. Thanks again!
Hi i am a young girl hoping of going into business ,love 2 chart with someone to give me some advice on how to go about it