Starting your own business is a steep learning curve and you’ll have to pick up a lot of new skills if you’re going to survive. Managing business finances is one of the areas that people struggle with most because it’s a whole different game to managing your personal finances. A lot of people think that, just because they’re sensible with their own money, they’ll be absolutely fine when it comes to running a business. But they soon realize that they haven’t really got a clue what they’re doing and start to lose control of their business finances. If you find yourself in this situation, it’s easy to start panicking but that’s only going to make things worse. Although it might feel like there’s nothing you can do, there absolutely is. Just take these steps to regain control over your finances.
Separate Personal And Business Finances
This is a very common mistake that new business owners make. If your business finances and personal finances are all in one account, it’s going to get incredibly difficult to keep track of. It also means that you’re more likely to start spending the company’s money on personal things. It starts out with the odd purchase here and there but once you get into the habit, it’s easy to start burning through that money quickly and that’s when you’ll find yourself in trouble. That’s why it’s absolutely essential that you have 2 completely separate accounts. It also makes it a lot easier to sort out your taxes if the money is separate. Even with 2 separate accounts, people still end up mixing their business and personal finances. For example, if you’re going out to buy some office supplies for the company and you realize that you need something at home, it’s tempting to just put it all through as one transaction. But if you make a habit of it, it’s hard to keep track of exactly how much you’re spending on the business. Even if it’s just one item, always put it through as a separate transaction from your personal account.
Educate Yourself
If you think that business finances are just going to be the same as your personal finances but on a larger scale, you’re really going to struggle. There are some concepts like budgeting that apply to both but it’s a completely different thing. You’ve got to deal with things like business taxes and paying employees and if you don’t really understand how it all works, you’ll have a hard time maintaining control of your money. That’s why it’s a good idea to educate yourself before you start the business. There are a couple of different ways that you can do this; there are plenty of great books and online resources out there that will help you to teach yourself the ins and outs of business finances. However, a lot of this stuff is quite tricky to understand and if you don’t have much prior knowledge, you might struggle to get your head around it. Sometimes, it’s better to get formal education like Walsh University’s BBA in Accounting program which you can take online. Not only will you learn about how business finances work, but you’ll also learn how to properly apply those new skills to your company for the best results. Having a certified qualification in accounting will also lend you credibility when you’re looking for investors to back your company because they’ll be more confident in your ability to look after their money properly.
Get Some Accounting Software
Even if you know the basics of accounting, keeping track of all of your spending and income is a big task. Luckily, there are plenty of great pieces of software out there that make life a lot easier for you. Organization is key when you’re managing your money, especially when it comes to doing taxes. You don’t want to spend hours searching for invoices that are saved all over the place on a load of different computers. There are a lot of different options for accounting software, all with their own benefits and drawbacks, so you’ll need to shop around and find the one that best suits your needs. Sage is one of the most popular ones out there because they offer different packages suited for different sized companies at varied stages in their development. It also integrates with Microsoft Office which is a big bonus because it’s probably what you’ll be using around the office. That makes it a lot easier to import any spreadsheets that you’re using to keep track of your spending.
Hire A Professional
Accounting software is great for managing all of your money and keeping track of every penny that is going in and out of the company, but there’s one thing that it can’t do and that’s make decisions. If things start going badly for you, a piece of accounting software isn’t going to tell you how to get out of that hole. In that instance, it might be time to hire a professional accountant to do it for you. A lot of new businesses avoid this because they’re trying to keep costs down, so they decide to do it themselves. It’s true that hiring an accountant is going to be a fairly big expense, but in the long term, it’s probably worth it. They’ll be able to help you streamline your finances and make some big savings, which should offset the cost of paying them in the first place.
Slash Spending
The number one reason that businesses lose control of their finances is that they’re spending way more than they’re bringing in so their cash reserves run out and they can no longer afford to cover all of their overheads. Bringing in more revenue is obviously part of the solution here but that doesn’t happen overnight and you need to make sure that you can keep operating until you’re making a good amount of sales. That means you need to slash your spending in a big way. Even if you think that you’re doing well, you’re probably wasting money somewhere in the company. It can be tricky to identify the areas where you’re wasting money because sometimes, they aren’t that obvious. It’s easy to tell you’re wasting money if you’re paying staff members that you don’t really need. But what if you’re spending loads of money on a marketing campaign that isn’t getting results? You might not immediately identify that as a waste because marketing is a necessary expense, but if it isn’t working, it’s a waste of money. That’s why you need to make sure that you have the right approach when you’re reviewing your spending. You need to look at all of your spending in terms of outcome. For example, you’ve spent X amount of money on your latest marketing campaign, what kind of sales increase have you seen from that? If it’s a large increase then that’s money well spent, if it’s not, it’s a waste. The same goes for any software or equipment that you’re paying for; has it improved efficiency around the office and helped your staff to increase sales or has it streamlined processes and allowed you to cut costs elsewhere? By taking this outcome focused approach to finances, it’s easier to identify hidden waste and eradicate it.
Chase Up Invoices
If you’re making a lot of sales and you expect to have a good amount of cash in the business, but the books say otherwise, you might have a big problem. Usually, it’s because people aren’t paying their invoices on time. Most customers won’t be a problem and they’ll be willing to pay their invoice on time without a fuss but there are always going to be people that will do anything they can to avoid paying. If you’re not chasing up those invoices, you’re just causing yourself more problems. If people don’t want to pay then they’ll try to challenge you on the amount or the date of payment, that’s why you need to be thorough when you’re issuing invoices in the first place. Get everything agreed to in writing every step of the way and make sure that you’re always keeping copies of everything so if they do try to challenge you, they haven’t got a leg to stand on. If people haven’t paid you, you need to get on to them immediately. Don’t worry about being too pushy or anything, they owe you money for products or services that you’ve provided. Email them and call them regularly to ask when they’ll be paying you and get a firm date from them. If they’re being vague, keep pressing them. You can also avoid this situation if you write fines for late payment into the contract. Make sure that the customer is aware of this from the outset and that will deter people from trying to avoid paying on time.
When your business finances start to get out of control, it can be very hard to come back from. But if you follow these basic steps, you can learn to manage them properly and make sure that your business survives in the long term.