Small businesses that fail often do so because they cannot properly manage their finances. As entrepreneur Scott Crockett, CEO of Everest Business Funding, explains, small business owners have to stay on the ball when it comes to money if they want to remain successful.
Too many small business owners lose sight of finances as they focus more on product development, marketing, and sales. But, understanding how to handle business finances properly is essential to future success.
Here are eight rules every small business owner should follow, according to Scott Crocket, CEO of Everest Business Funding.
Rule #1. Separate Business from Personal
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Every business owner should separate their personal finances from their business finances. No matter how small the company is, this is an important place to start.
This means setting up a separate business bank account, opening separate business credit cards, and taking any loans in the business’ name. Doing so will make it easier to track finances and report taxes.
Rule #2. Understand Basic Accounting
You don’t have to be a CPA, but you should understand basic accounting terms and principles. You should understand expenses, gross revenue, net profit, cash flow, and your break-even, at the very least.
Rule #3. Set Up Your Books
Every small business will need some accounting system in place. This will help create easy reports that will help guide you throughout the year and make end-of-year tax preparation simpler.
At the very least, you’ll need a balance sheet, income statement, cash flow statement, and revenue forecast.
Rule #4. Pay Your Taxes
This may seem obvious, but business taxes aren’t just paid once a year, unlike personal taxes. Yes, you will have to file tax returns with the IRS annually.
For business, though, you also need to file estimated taxes quarterly. Talk with a professional accountant if you don’t know how to set these up.
Failing to pay your taxes on time or not paying your fair share can be catastrophic to businesses.
Rule #5. Create a Billing System
Sales are great, but they don’t pay the bills. As any small business owner will soon find out, collections are as important as sales.
By setting up a simple, yet detailed billing system, you’ll ensure that you collect the money you’re owed. Plenty of software systems and automated tools can make this job hassle-free.
Rule #6. Create Realistic Projections
It’s hard to run a business if you can’t anticipate what’s coming. Every small business owner should create realistic sales and cash flow projections on at least an annual basis.
This will help you predict potential seasonality in your business and when you might have extra cash on hand or be short on cash. This realistic forecast should guide you in making investment decisions throughout the year.
Rule #7. Constantly Monitor Your Books
You should monitor your business finances consistently. This isn’t a one-and-done situation.
At least a few times a week, you should analyze your books to make sure things are happening as you expected them to, or whether you need to make any changes.
Rule #8. Make Smart Investments
All small business owners should look to reduce expenses where possible. But, spending money is necessary if you want to grow your business.
The key is making smart investments that will provide you with a solid return. Software and technology tools might be expensive, but they could return you significant value by saving time and money in the long term.