Badly tracked finances can cause your business a world of problems from poor cash flow to improper tax filings and beyond. These kinds of problems can put a young business at serious risk. Entrepreneurs keep a lot of the financial details of their business in their heads. Good bookkeeping habits, on the other hand, can help a business thrive and not just survive. But when you don’t have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork forgotten. Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and maybe improve your profits.
1. Plan for major expenses:
Why it’s helpful: You’re less likely to miss business opportunities or have to scramble for a loan when the expenses become unavoidable.
What to do: Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead. Acknowledge the seasonal ups and downs, something many entrepreneurs are reluctant to do.
You’ll avoid taking money out of the company during the flush periods only to find yourself short in the slower months, when costly projects like upgrading computers or replacing factory components usually happen.
2. Track expenses:
Most card statements categorize expenses, so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you’re less likely to pay cash at, say, Staples and lose the receipts. Routinely jot down business trips, lunches, coffee dates and other events with cash outlays in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your income tax records in the event of an audit.
3. Record deposits correctly:
Adopt a system for keeping your financial activities straight, whether it’s a notebook you use consistently, an Excel spreadsheet or software such as QuickBooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. You or your bookkeeper might mistakenly record some deposits as income.
4. Set aside money for paying taxes:
Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they’re due.
5. Keep a close eye on your invoices:
Late and unpaid bills hurt your cash flow. Assign someone in your organizations to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines.