Financial Tips for Managing a Small Business

Small business owner managing his finances

In most cases, owners of small businesses — and even those looking to start small businesses — are highly skilled at producing their particular products and/or providing their chosen services. More often than not, they also possess extensive knowledge in their area(s) of expertise.

But they’re not always as skilled in an area that’s critical to any small business’s success: finances. And whatever the business type — from running a coffee shop or selling shoes to operating a daycare, an art gallery, a roofing company or any other small enterprise — properly managing cash flow and otherwise keeping control of business funds is essential.

If you’re struggling with your small business’s money-management duties, anticipate that this could be a big challenge for your future small business or are otherwise in need of some helpful small business finance tips, consider these seven leading financial tips for small business owners that can help you keep your small business financially healthy, organized and profitable while limiting financial risks:

1. Pay yourself a salary — It’s not uncommon for small business owners to refrain from paying themselves in an effort to conserve the business’s funds and help the enterprise grow. But paying yourself from the start — even if it’s just a small amount — can help you cover your own expenses and build up your own personal savings, both of which are important, especially if the fledgling business doesn’t work out. The structure of your business will likely determine whether it’s best to pay yourself a salary or a draw, so you may want to consult with an accountant when deciding.

2. Keep business and personal funds separate — Allowing your personal and business finances to become intermingled — by, for example, paying off business expenses with your personal accounts or vice versa — may seem like an easy answer up front. But this can create big headaches come tax time. Further, more generally monitoring and managing your business’s finances is much easier when you don’t have to dig through your personal accounts to track down business transactions and other important data related to business finances. To simplify things moving forward, when establishing your business, be sure to open up a business-specific checking account, along with a business savings or money market account to facilitate the business’s short- and long-term savings needs.

3. Build a budget — Creating a business budget helps you better anticipate the costs involved in operating your business — and can guide you in creating goals for your business’s revenues, savings and expenses. When your revenues fall below anticipated amounts or expenses exceed the amounts expected, it can help you more easily identify ways to trim expenses and potentially boost income, too. And by helping you know how much you can afford to spend, a budget can also help you with big-picture money management and simplify/inform your financial decision-making.

4. Consider employing an accounting program — For especially simple and straightforward business endeavors, a spreadsheet may be the only accounting tool needed to stay on top of finances. But many small businesses’ finances can be too complicated for a spreadsheet to suffice from the beginning, and they tend to grow more complex as time in business passes. By using an accounting program such as QuickBooks, FreshBooks or Wave, businesses can more easily track and scrutinize their income and expenses. Plus, they can simplify a broad range of finance-related responsibilities such as keeping up with invoices and payments, recording data on valuable tax deductions, tracking employees’ mileage for reimbursement, staying on top of payroll and much more — plus quickly and easily create informative financial reports whenever needed.

5. Be prepared to pay taxes — All businesses are required to pay taxes on their earnings, so it’s a good idea to set money aside each month to ensure that the funds needed to cover the tax bill are on hand when the time comes. To ensure that you’re setting enough aside, calculate your earnings before interest and taxes (EBIT), which represents your revenues for the month, and put 25% to 30% of that amount into savings so it’s there when your quarterly estimated tax payments are due (typically on April 15, June 15, September 15 and January 15 of the following year).

6. Consider a business credit card, loan or line of credit — As a business owner, you never know when you may need help with cash flow or might encounter unanticipated expenses. To help ensure that you have access to the money needed when such situations arise, it’s a good idea to establish a credit line before you need it, or to recognize when taking out a business loan might be in your best interests. Not only can doing so help you overcome cash flow challenges and cover unexpected expenses, it can also enable you to make investments in your company such as purchasing essential, efficiency-boosting equipment when needed or to invest in strategic growth opportunities.

7. Know when you need help — For nearly any business, no matter the size, staying on top of all the enterprise’s accounting obligations can be a significant chore. But especially as the business grows larger, keeping up with this responsibility can grow more and more time-consuming and complex — just as your responsibilities in other areas of the business increase in size, too. As the business and your management responsibilities grow (and even sooner if needed), be open to procuring additional help such as an accountant to assist with organizing and executing your financial obligations. This is especially important when you encounter tasks and decisions for which you may lack the financial expertise and skills needed, as doing so can help you avoid costly mistakes and limit financial risks.

At The Southern Bank, we pride ourselves on offering friendly, personalized service to all of our customers — and that includes providing guidance when you have questions about any of our business banking services. To learn more about our Business Banking services ranging from Business Checking to Business Savings & Money Market, Business Lending, Digital Banking and more, check out the Business Banking page on our website, or visit one of our local branches for friendly, in-person service with a smile.

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