- August 3, 2022
- Posted by: Abhishek
- Category: Knowlegebase
If you have just started your own business or are planning to start one, it’s a must for you to master financing. In fact, personal financing and business financing are nearly polar-opposites so make sure that you understand your roles and responsibilities towards your business’s financial health very well. So here we have the top 3 tried and tested strategies to effectively manage your small business finance.
Financial Planning is an unavoidable element in business. Whilst big businesses can hire a team of experts to handle the finances, small business owners can’t. So it becomes even more important for you, as a small business owner, to know how to plan finances effectively.
Financial Planning involves studying the figures, developing short and long-term goals, and formulating adaptable tactics to achieve them. It also consists of predicting and dealing with financial barriers strategically.
For a small business, some of the financial barriers can be-
- Limited or inconsistent cash flow
- No funds for unforeseen setbacks
- Lack of financial transaction records
- Raising capital for new investments
- Filing taxes
The textbook term for bookkeeping is the process of recording your company’s financial transactions into organized accounts regularly. In simpler words, bookkeeping is recording and organizing all sorts of financial transactions that are associated with that business.
Bookkeeping is your first step in managing your finances. All you’d require to do is-
- Bills, Bills, Bills
Make sure that all of your transaction receipts are stored safely. Whether physical receipts or soft copies, it’s crucial that you keep the invoice copies secured.
Just shoving all the bills into a file ain’t enough, you need to organise them too. I know, hell of a task, but you will have to do it or else it will come back to haunt you when you file taxes.
Organise the records into categories, for example- credits, debits, due, etc. It’d be best if you maintain an excel sheet for each category on a weekly or monthly basis.
- Figure the Figures
It’d be best if you maintain an excel sheet for each category on a weekly or monthly basis because you’d need to do some mathematics and sum up all those records of each category into numbers. Only numbers will provide you with the full picture of your business’s financial well-being.
The textbook term for accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results. In simpler words, accounting is analysing the financial records associated with the business and providing a full view picture of its financial health.
I’m quite sure that even if you weren’t that aware of bookkeeping you surely have heard about accounting before. Accounting is scary, but it can be simplified for small businesses.
Firstly, you need to select your accounting methods. There are mainly two methods of accounting which you can make use of, even with the help of your computer and AI.
- Cash Basis Method of Accounting
In a cash basis method of accounting, you record income and expenses when money is received or paid.
- Accrual Basis Method of Accounting
In an Accrual Basis Method of Accounting, you record income when you make a sale and expenses when you incur them. This is irrespective of whether you received or paid cash for the product or service. And this is the most widely used method of accounting in business.
Using either of these methods, a chart of accounts lists all business transactions and is used to compile statements, review progress and locate transactions. This may sound very familiar to the bookkeeping segments and that’s because they both intertwine exactly at this stage.
Strategy#3 Tax Preparation
As a self-employed trader, you would most likely be required to file taxes every 3 months, which is a curse, but also a blessing in disguise. That’s because it’s easier to track and keep records of every small business-related transaction you make for a period of three-four months than it is for a period of twelve months as a whole.
Another cool thing is, that the more detailed and accurate you are about your receipts and transactions the more you can save in taxation. So, bills-bills-bills, make sure you save and keep all of them very secure at least till you pay the taxes of the running period.
Important Point: Please put away at least 20% of your profit from the beginning for taxes to save your delicate heart from a full-blown attack when the deadline for filing taxes comes around. For real, most businesses are never prepared to pay taxes and you must not let your business become one of them.
Some Small Business Financial Advice-
- Keep your personal bank account and business bank account separated. For the love of God, don’t mix up your personal transactions with your business transactions. Trust me, you’d hate yourself sooner or later because of it.
- Learn to read financial documents. Even slight inaccuracies in figures can create loopholes in your finances, so it’s critical that you read and understand financial documents and cross-check them regularly yourself. To begin with, you should learn about-
i. Cash Flow Statement
ii. Balance Sheet
iii. Income Statement
- Make good use of accounting software. Not every business can afford an accountant but accounting software is a good and intelligent investment for businesses of every size.
- Be ready for Audits. Think of audits as something quite natural and likely to happen and be prepared.
We hope this article was informative and gave you a general idea of how to manage small business finances. Stay tuned for more such articles in which we will keep you up to date on current events as well as important developments in the accounting world.
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