As your business begins to grow, you will need to know how to track and manage your money correctly. Just as you manage your finances, you will need to control the cash flow as it comes in and out of your business. So the question many small business owners have is, “How do you do this successfully?” Managing finances isn’t an exact science, but there are foundational elements that will help you find success.
Organize Your Business
If you are currently operating as a sole proprietor, you may want to consider an LLC to protect yourself and your business. Filing for an LLC will also make it easier to open a business checking account and file taxes as a business entity.
Employer Identification Number
After applying for an LLC, you will be issued an employer identification number (EIN) that you will use to open a business checking account or line of credit and file taxes. Your EIN is like a Social Security number for your business. This number will be used for various business transactions and is easy to acquire from the IRS.
Open Your Business Checking and Savings
Now that you have an EIN, it’s time to open that business checking and savings account. Find a local bank or credit union that you believe is the right fit for you and open an account. Many financial institutions will offer incentives to help you get started. Find a bank or credit union with multiple locations in your area of service. This will be useful if you deal with frequent cash transactions or need to deposit checks on a regular basis.
Personal Expenses vs. Business Expenses
One of the first things you need to do is separate your personal expenses from your business expenses. Keeping these funds separated will be important for the growth of your business and will allow you to account for all your costs, making it easier to files your taxes and eventually sell your business. You may also want to consider outsourcing your bookkeeping.
Invoicing and Collecting Payments
Consider how you will invoice your clients and collect payments. There are plenty of invoicing applications that allow you to set up and automate your invoicing. Depending on your line of work, you will want to figure out your payment processing. Most businesses accept credit cards, cash, and check. Online companies may accept PayPal and other forms of electronic payment, including Bitcoin. Figure out how you want to invoice and collect payment.
Accounting Software
You will want to keep track of the money as it’s collected, spent and saved. If you keep money in multiple accounts, accounting software will help you keep track of it. Keeping money in a checking, savings and PayPal account is standard practice. If you send and receive payment through PayPal, it would be reasonable to keep a balance in that account before transferring to your checking account. Using software to manage spending, receive payments and handle payroll will help you keep your finances in order. Finding a software solution that can facilitate growth is suggested. Setting up monthly spreadsheets using Microsoft Excel or Google Sheets is also a great way to track finances until you decide on a software solution.
Stay Organized
Keeping track of your finances requires organization. Retaining receipts for tax purposes will be helpful for you and your accountant. Keeping these receipts and records organized in a way that is easy to access will make things easier for you. Keep records for up to five years. Using a filing cabinet, folders and manila envelopes to categorize monthly documents is a great way to keep organized. Scanning and archiving these receipts are also encouraged. Saving to a Google drive or other similar cloud platform will allow you access no matter where you are. You can also share this drive with your accountant for easy access.
Find an Accountant You Can Trust
Trusting a stranger to handle your finances can be a tough transition for any business owner. As your business grows, you will need to delegate these accounting and payroll responsibilities to someone else. Use Google to search for a qualified small business accountant, read reviews and ask for recommendations before handing any paperwork over to an accountant. You will also want someone who can help you write off your expenses and maximize your tax return. Accountants can also be useful if the IRS ever audits your business.
Outsource Your Payroll and HR
Payroll is a significant part of managing your expenses. You may have full-time employees with health insurance, vacation time and other benefits that require details to be included on paystubs. Outsourcing payroll is a great way to automate that process and ensure pristine record keeping and support. Payroll companies like ADP and Paycom lead the industry when it comes to payroll and HR solutions for businesses.