You’ve started your own business, and that is fantastic! You’re busy getting the marketing, sales funnels, and all the other tasks in place to ensure you will start making some money. That’s smart. But have you considered how you should be managing your business money to ensure long term viability for your business?
Often the money management aspect of the business is overlooked when it shouldn’t be. Money management doesn’t need to be hard. But suppose you are not managing your business finances right from the beginning. In that case, you are setting your business up for problems down the road.
It is your responsibility as a business owner to ensure you keep those accounting records as back up in case of a government audit. These records are what your tax bill is based on as a business. Depending on where you live, if you are operating a business and earning income, that income must be reported to your government. Your business pays taxes.
The benefits of sound financial management within your business are that it will allow you to make more money and be a more profitable business. But good financial management starts with the basics.
For proper financial management in your business, follow these essential four steps:
1. Keep separate bank accounts for personal and business finances
This is the first step in ensuring that you keep adequate accounting records. You should not be paying for personal items with business funds, so it makes good sense to keep your personal finances out of your business. Use your business bank account and credit cards solely for business purposes so that you can keep a clean audit trail. You’ll be happy you did should the government ever decide to audit you.
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2. Good bookkeeping in your business is important
Bookkeeping is essentially the management and maintenance of the financial data that in your business. Your financial reports, which you should be basing a large portion of your business decisions on, are based on that data. Because of this, your books must be kept accurate and current. Investing in a competent bookkeeper is extremely important initially, as it will save you from costly mistakes down the road.
3. Track and keep a record of what the business owes you
If you do have to pay for a business expense using your personal funds, ensure that you are recording these transactions properly so that the business can reimburse you for your expenses. These transactions are tracked in the Shareholder Loan account, which appears on the balance sheet.
4. Do not spend beyond your means, yes, even in your business
It’s so easy to spend your money in business, especially in the start-up phase where every aspect of your business is screaming for attention. In an entrepreneur’s life, it can be tempting to spend more money than you are bringing in to keep up appearances of what people think of as a successful entrepreneur. Don’t drive expensive cars, wear the latest trends, and look like a financially successful entrepreneur before you have reached that status. That is a fast track way to going broke. Do not let that happen to you and spend responsibly.
The bottom line is having reliable, accurate and meaningful financial data can help you make smarter decisions within your business. Every decision you make in your business impacts your bottom line (profit line), whether directly or indirectly. Good business financial management will make the difference between a viable business or a business that goes broke. Make your decisions wisely.