Continuous financial planning and forecasting are critical to business growth. But as a small business owner, it can be difficult to do this thoroughly and efficiently. Maybe you’re not a numbers expert or you feel like running a business really takes time.
Now managing and analyzing your business finances doesn’t have to be a frustrating process. In fact, proactively looking for improvements can lead to more effective and fruitful financial management.
Here are some tips for better managing your business finances.
1. Invest in financial management technology
There is no shortage of accounting and financial technology (fintech) apps on the market. These advanced platforms help small businesses, start-ups and sole proprietors automatically record transactions and monitor account balances. Many of these solutions can also create tax returns or integrate with tax preparation software.
Either way, there’s no reason not to invest in one (or more) of these resources. Doing so will help you manage your budget and expenses more consistently, while freeing up more time for your company’s more mission-critical and revenue-generating tasks. Do your research, determine which accounting-related tasks you can optimize, and start testing your solution.
Even if you’re adamant against using accounting software of any kind, you still need to keep track of things in a spreadsheet so you can create simple reports. For example, banks typically allow financial statements to be exported as spreadsheets. That said, it can take enough time to make it worth outsourcing to a freelancer for data entry and verification.
2. Choose an accounting method and stick to it
There are several ways to track the finances of a business, but companies typically use either the accrual method or the cash method. The difference between the two is centered around changing the balance. The cash method records payment when it is received, while the accrual method records it on the date of sale.
The accrual method is a more accurate snapshot and can help you save on taxes, but it also risks tricking you into thinking you have more money than you actually do. Cash methods, on the other hand, provide a clear picture of current and historical cash flows, but are highly unpredictable and have their drawbacks.
Whichever method you choose, it’s important to stick to it. You can’t simply choose the year based on which one is more profitable for your business. This is a recipe that can lead to unintentional accounting fraud that can quickly lead to business losses and put your business in legal trouble.
3. Understand financial statements
You don’t have to be an accounting expert to run your business. However, you should at least have a general understanding of what financial statements are, how they work and how they interact with each other. First, the three basic financial statements are the income statement, balance sheet, and cash flow statement.
The income statement gives an overview of the performance of the business. A balance sheet is a basic snapshot of the health and stability of a business based on assets and outstanding liabilities. A cash flow statement shows whether you have enough liquidity to keep your business running and pay your bills.
Apart from that, these statements are great tools for understanding certain aspects of your business. Together, they give you a clear picture of how you are performing and make smart, strategic financial decisions much easier. It becomes much easier to start creating and proactively preparing for different scenarios.
4. Automatically generate reports
If you spend a lot of time putting together these financial statements, it can be difficult to analyze them. It can also be frustrating to cross-check these statements when viewing and updating them individually. Not to mention if you want to add more color to your financial reviews with specific payroll, CMS, or other reports.
So rather than dealing with them individually, it’s often more valuable to leverage tools that can handle them in aggregate. Generate financial reports automaticallyThis makes it much easier to identify top-level opportunities and dive into individual financial statements in a single dashboard.
This feature allows you to fine-tune what you see, easily share information, and in some cases even make adjustments directly from the report itself.
5. Talk to an accountant
Even with all the modern tools, accounting is still difficult and cumbersome to manage. As such, accountants have a wide range of possibilities and must obtain various certifications based on their exact areas of specialization.
Your business may be too small to justify staffing a full-time accountant, Outsourcing accounting service Great way to experience a la carte if desired. You can find a wide variety of services and freelancers specializing in niche areas such as accounts payable/receivable, bank reconciliation, payroll, and taxes.
Accountants can also save costs by understanding current government programs, regulations, regulations for the current tax year, and upcoming legislative changes. Major events like the COVID-19 pandemic have enacted numerous government-funded programs, and you may not know how many of them apply to you. Of course, even if you have an accountant, you still need to know your numbers.
Review and improve financial management processes
As your business grows, keeping track of your finances can become difficult. But modern tools are enabling sole proprietors and small teams to accomplish more than ever before, and financial management is no exception.
Understanding past and current performance can help you better predict the future and maintain your organization’s financial health. Revisit the steps in this process semi-regularly. You may find that you have even more opportunities to improve your practices and find opportunities for further growth.