Seven Tips to manage your money better

Cash flow is the fuel that keeps a business running smoothly. To make sure your company isn’t running on empty, check your current practices against these techniques used by the top money managers.

Create a cash flow budget

A cash flow budget helps to ensure that you can comfortably pay all your expenses and enables you to manage your revenues and expenses proactively.

Key components include a sales/revenue forecast; anticipated inflows, such as accounts receivable; anticipated outflows, such as cost of goods sold; debt repayments; and operating expenses.

It’s important to keep your cash flow budget up-to-date and to make sure that it reflects changes in your operating environment and your plans for your business.
Know the sensitivities in your cash flow

It’s important to pin down which items – such as price, volume, or overheads – will have the most impact on your cash flow.

Cost of goods sold, for example, has a significant impact on your cash flow, yet is difficult for you to change. At the same time, competitive pressures may prevent you from increasing prices.

Cash flow is also affected by inventory days and accounts receivable days.
Manage the credit you are extending to your customers

There are a number of different ways to improve how you manage your receivables.

Establishing effective credit policies is an important part of successful cash flow management.

You might also think about how you can encourage clients to pay more quickly. For example, consider discounts for early payments, or charge interest on accounts that are past due.

While interest and late charges may actually become a source of income for your business, it’s important to apply some due diligence. Extremely late payments are more likely to become write-offs and will also keep some of your working capital tied up.
Keep your payables up-to-date

Regularly reviewing your accounts payable schedule helps determine how well you are keeping up with your credit obligations.

A useful practice is to have an “aging schedule,” which shows you how much you owe, to whom, and whether you are current or past due on any bills.
Reduce expenses

Look for ways to cut back: for example, can the cost of promotional materials (such as printing or production) be reduced without compromising their quality and impact?

When business volume steps up, bring in temporary, contract, or part-time help before committing to additional full-time staff.

An independent audit may reveal redundancies and inefficiencies that you can address.
Use credit effectively

The best credit facility will depend on your company’s individual circumstances, business plans, and existing credit facilities.

For example, term loans are ideal for long-term capital purchases, while lines of credit can be used to meet short-term working capital requirements or to take advantage of unexpected business opportunities.
Put your company’s surplus cash flow to work

Assess how much money you need to set aside for emergencies

To do this, review your company’s cash flow history for any patterns.

As well, consider how potential changes in the economy, such as currency or interest rate fluctuations, could affect your revenues or expenses.

Any surplus in your cash flow can be used for business expansion, to pay off debts, or to maintain a certain level of working capital.

Your CIBC business advisor can help you in all areas of your cash flow management to find the solutions that are right for your business.

5 Tips for Getting Your Company’s Financial House in Order

When you started your business, unless you love finance and accounting, you probably weren’t excited to crunch numbers and dig into financial models. Instead, you did it because you love to bake cakes, get people in shape or do whatever is at the core of your business.

But there’s a clear difference between working your business (i.e. baking the cakes) and the work needed to run your business (i.e. making sure you have the money to buy flour for the cakes). One can’t exist without the other, and business owners often make the mistake of putting too much emphasis on working the business while ignoring how the business is run, oftentimes to their detriment.

One of most difficult parts about running a business are tending to numbers that need crunching and financials that need digging into. Without attending to them, your business could be headed for trouble.

But what if managing finances could be less of a pain? Good news—it can be! Below are five tips to help your financial management run seamlessly, so you can get back to focusing on other parts of your burgeoning business.

1. Embrace Technology

If you’re not already using accounting software, you’re making it about 1000 times harder to manage your financials. There are so many excellent options out there. If you don’t have accounting software yet, make it a priority to purchase one in the next few days—it really is that pertinent. But even if you’ve been using accounting software for years, have you stopped and thought, “What other technologies could streamline different aspects of my finances?”

Whether it’s expense management, tracking your employees time for accurate payroll or even something industry-specific (i.e. an app for contractor bidding), you should consider what your biggest financial pain points are, and then research what’s out there to solve them.

2. Get Comfortable With Your Most Important Financials

There are key financial documents that every small business owner needs to know inside and out. These include your income statement (also known as a profit and loss statement), your balance sheet and your cash flow statement. Many of these reports can be generated in your accounting software. Click this link to learn more about these three financial statements, including getting free templates for each.

  • Income Statement: Your income statement gives you an idea of your business’ net income, which is essentially your revenue minus your expenses. Your business is killing it in sales, but if you’re spending more than you’re making to get there, then you’re perpetuating an unsustainable business model.
  • Balance Sheet: Your balance sheet is a snapshot of your company’s financials at a specific point of time, so it’s one of the best tools for figuring out how “healthy” your financials are. It’s important you learn to read a balance sheet, so you can come to the right conclusions.
  • Cash Flow Statement: Your cash flow statement is used to track the money coming in and going out of your business over a specific period of time. Knowing when cash is coming in and where it’s going out is key to keeping your business healthy.

3. Get Help

If you currently aren’t working with a bookkeeper or an accountant, that should be your very next step. If you’re a young business and can’t quite afford these services, see if you can connect with a local bookkeeper who you can perhaps barter with. For example, if you run a marketing firm, you could offer your prospective bookkeeper a consulting package in exchange for a few hours of bookkeeping a month.

Not only will this help ensure your key financial documents are accurate, but many accountants are moving into a “consulting capacity” where they can offer you overall financial advice, introduction to helpful apps for your business and more.

4. Save for Taxes

You should open up a tax savings account so you don’t get hit hard, whether that hit comes quarterly or in April. Ask your accountant for advice on setting this up, including structures for any scheduled payments or deferments.

Additionally, ask your accountant what your expected tax rate is. When your business receives a payment, take this amount out and put it right into that savings account. Not only will you be ready to go when you need it, but as an added bonus, you’ll have earned some interest on the money you’ve been saving. It’s a win-win!

5. Add in Money Minutes

By always having a pulse on what is happening with your finances, you’ll be able to identify trouble spots early and address them before they get out of hand. To do this, start your morning every day with “money minutes.” Take the first 10 minutes of every day to check in on what’s happening with your finances. Did you find any unexpected expenses? Bills that need to be paid? Maybe you’ll find a customer that missed their invoice due date and needs you to resend the invoice online along with an email reminder.

If you don’t prioritize your business’ financial management, how can you expect your finances to stay healthy? As a business owner, time is certainly your most valuable asset and it’s tough to find surplus amounts in your already-full schedule. But if you adopt the tips above, you’ll find managing your finances can become much more seamless.

5 tips to manage your cash flow

Cash is king—it’s a common saying in the business world. But surprisingly few entrepreneurs take steps to manage their cash flow so they don’t wind up with an empty bank account and nothing to pay the bills.

“One of the main causes of business failure is poor cash flow management,” says Susan Rohac, Vice President, Growth and Transition Capital at BDC. The good news: cash flow management is easy to improve with a few simple steps.

“Getting control over your cash flow helps you prepare for slow periods, plan your financing and have peace of mind,” Rohac says.

Follow these five steps to get a better handle on your cash flow.

1. Check your profitability

First, make sure your business is earning a reasonable profit. Even the greatest cash flow management won’t help if your fundamentals are out of whack.

Analyze each product and service separately to see whether it’s pulling its weight. Make sure your products are appropriately priced, and work to eliminate inefficiencies. Instead of just chasing sales, chase profitable sales.

Mike Whittaker’s company Bonté Foods learned the consequences of poor cash flow management the hard way after facing large cost overruns on two major projects.

The deli meat maker in Dieppe, New Brunswick, a suburb of Moncton, had to act quickly to restore its cash position.

It analyzed its profitability and realized it had to raise prices to better reflect costs. Bonté also unloaded lower-margin product lines and launched an efficiency drive while tightening cash flow management.

The changes had a huge impact, producing higher sales and profit margins. “We learned to watch our cash very carefully,” Whittaker says. “You need to always be ahead of the curve on cash flow management.”

2. Do a cash flow projection

Next, prepare a cash flow projection for the coming year. This is your early warning system for cash flow hiccups. Use an Excel spreadsheet or accounting software to plug in expected monthly cash inflows and outflows, including anticipated big-ticket purchases.

Use the projection to anticipate slow periods and plan in advance what to do about them. “Through the year, check your actual cash position regularly—once a week or month—against your projection to see how you’re doing and deal promptly with any divergences,” says Rohac.

3. Finance big buys instead of draining cash

One of the most common cash flow mistakes is using cash to buy a major long-term asset, instead of getting financing. Even if you feel flush right now, you may suddenly wind up short of cash if you experience a sudden revenue shortfall or rapid growth.

Use your cash flow projection to plan your financing needs ahead of time, not in the midst of a crisis, when bankers may be wary to lend. Rohac also recommends matching the lifespan of a purchase with financing of similar duration.

4. Speed up cash inflows

Getting money into your business more quickly can save you carrying costs on your line of credit. Some tips: send out invoices more quickly, ask customers to pay electronically and charge interest to slow-payers.

5. Raise cash quickly in a crunch

Facing an unexpected cash flow crunch? You can raise cash quickly using various techniques: approach your bank for help; check your inventory and assets to see what you can sell off, even at a discount; ask suppliers or your landlord for extra time to pay bills; or offer your customers a big discount to earn some quick sales.

Top tips to manage small business finance

manage small business financeCashflow management may be one of the main reasons small businesses fail, but budgets and finances are the next two down the list.

Balancing the books isn’t easy, nor is budgeting and forecasting what your ongoing costs will be at any time. One of the big problems businesses run into when they start getting some good money is that lack of forecasting and financial planning can lead to disaster.

“Businesses tend to either overestimate or underestimate,” says Peter Strong, executive director of the Council of Small Businesses of Australia.

“They often make budget decisions based on their emotional decision…rather than the facts.”

Many SME owners didn’t get into business to run their finances so this is an area often left until last.

There are several ways small business finance can be improved – and much of the time it doesn’t involve having to be any better at math.

Click here to read Gartner’s Magic Quadrant for Cloud Core Financial Management Suites 2017 Report.

Make data-led and informed budgets

As Strong explains, many businesses make financial decisions based on gut feel rather than looking at past data to get a feel for more accurate predictions.

“When businesses look at the next year, they tend to assume a lot of things like ‘oh, rent will only go up by CPI, or wages will be the same’,” he says.

“But have you spoken with the landlord about that? They might think something different. And if you have people leaving, are you going to replace them? Do you need that work to be done?”

Strong says SMEs need to be more realistic about their planning and always keep the worst-case scenario in mind.

Get the big picture

Little Real Estate is Australia’s largest privately owned real estate business with more than 400 employees across the eastern states, with offices in Melbourne, Sydney, Brisbane and the Gold and Sunshine coasts. The business has over 21,000 properties under management.

The company has recently been through a significant financial transformation – especially with the adoption of new reporting technology – and its success is a road map for SMEs looking to get a handle on their money.

Like many businesses, financial information within Little Real Estate was often housed on disparate systems, making it difficult to forecast. Rebecca Kerr, the company’s chief financial officer, says team members were forced to spend hours putting reports together.

“It wasn’t effective, and it ran the risk of data not being accurate,” says Kerr. “So we implemented a new finance system and budgeting tool to assist with the collation of data”.

With weekly operational reports required on properties under management, rental arrears and so on, there were many variables that could negatively impact the company’s finances. Having that data readily accessible better informs financial decisions.

“Previously, we weren’t able to provide that data to the board and the business in a timely manner.” says Kerr. “That was the key driver for us.”

Make financial data available to more people

The future of business is one in which data plays a key role, but democratising that data is just as important. Little Real Estate was able to prepare more accurate budgets by enabling and empowering each division to be accountable for their results.

“The traditional accounting software we used was quite simply unable to deal with our future growth strategy,” says Kerr.

Now, new technology installed by the business has enabled each division to spend less time compiling data – they simply run reports and have it visualised.

This saves the finance division a huge amount of time, and also enables more accurate reporting: decisions are made closer to the source which spends the money.

“We are seeing employees spend less time on compiling data and more time analysing it, doing the reporting and adding value to the business,” says Kerr. Adding a budgeting tool allows quicker access to the financial truth of the business so divisions could make their own informed decisions.

“That has allowed us to get more ownership around the whole budgeting process,” says Kerr.

Given that experience, what does Kerr recommend for other businesses to get a hold of their finances?

“A lot of it is about documenting processes and making sure they’re being done as efficiently as they can.” she says.

It’s important to challenge current processes, and ensure they are not followed just because it is how they have previously been done, Kerr says: any software solution, should then continue to build on these efficiencies.

17 tips to manage your small business finances

Airbnb-guest-working-businessWant to get finances under control in your small business?

Knowing the state of your financial affairs back to front is one of the best ways to make sure the cash keeps flowing. Staying on top of your finances means you can avoid unforeseen business debt and have enough money to invest in and grow your business.

Stay on top of the day-to-day money management

  1. Properly manage your accounting. You can hire a good bookkeeper or purchase DIY accounting software. It is crucial that you keep accurate track of your income and costs.
  2. Review your costs. Keep track of all of your small business expenses. These can add up quickly, but reviewing them allows you to fine-tune where your money goes.
  3. Make financial projections. Having clear financial projections is important. Your main business plan will help you to anticipate and address possible future obstacles.
  4. Don’t get slack on invoicing.
      • Send out invoices as soon as possible after providing goods or services.
      • Set payment terms of seven days to make sure that payments are not forgotten or lost in the process.
      • Always follow up on sent invoices. You can make this easy by creating set templates for email or SMS follow-ups.
      • Reference invoice numbers and cross-reference these with payments.

Separate business, pleasure and private accounts

  1. Keep a separate business bank account. Mixing business money with your personal finances is a recipe for unexplained losses and tax-headaches. Keeping your business’s money separate will make gauging profitability easier and help you to keep proper track of your expenses.
  2. Keep track of personal loans to your business. Keep accurate records of what you loan to your business. When your business starts making money, you can easily pay back the director’s loan first before paying tax on the remaining profit.
  3. Make sure to pay yourself first. This doesn’t mean sucking up all the profit the moment you make it; start with 10% of the earnings. This is a good way to set aside money consistently and to test the profitability of your business. It also provides a safety net for unexpected expenses.
  4. Remain frugal. Even though you pay yourself, don’t get sucked up in the benefits of business ownership even if you can afford it. Set your salary as low as possible and offer government-mandated benefits only. What you save now will give you more flexibility in future lean months.
  5. Keep traveling costs minimal. Most hotel and travel costs should be spent on a place to simply lay your head at night and a way to get from meeting to meeting. Don’t overspend on luxurious travel and accommodation. This sets a bad precedent to employees and can be an unnecessarily large cost with little return. Plan your business trips as if you were paying for them yourself.

small-business-finance-tips

Take care of the bigger business issues

  1. Don’t let legal fees get out of hand. A reasonable amount to pay per hour for legal services is $450. How can you manage this cost?
      • Make your expectations clear to your lawyer when procuring their services.
      • Choose the billing option that is the most cost-effective for your business, for example, hourly or per project.
      • Ask whether it is possible to defer payment until the project is funded.
  1. For the more simple necessities, consider DIY legal documents. There are various kinds available online.
  2. Take care when expanding. Make sure expansion is done steadily and wisely. Pushing large amounts of money into expansions that are too quick and too drastic can be disastrous.
  3. Take control of your own marketing and public relations. Follow a PR and marketing strategy to make sure efforts are intentional and focused.
  4. Consider renting instead of buying. Leasing equipment instead of buying helps you avoid maintenance costs and can also prevent you from overpaying on equipment only needed for a specific period of time. You could also consider renting your office space, as it makes relocation and expansion easier.
  5. Don’t wait too long before seeking a loan. An easy mistake to make is waiting until your business is in financial trouble before applying for loans or other credit. This is exactly when you will be least likely to receive financing. Consider applying for a business loan when your financials are still in a good state. This way the loan can be used for expansion or as an emergency line of credit instead of rescue.
  6. Make sure you have enough capital. Small businesses tend not to have enough capital to get themselves through the startup phase. To prevent this, have three months’ living expenses saved plus the amount you are expecting to need for the first three months’ business expenses. Plan as if you expect to receive no business revenue.
  7. Don’t spend prematurely. Don’t go big on business cards, sign writing, marketing materials, cars or inventory before any actual revenue comes in. This can create a cash flow blockage.

4 Money Management Tips For Small Business

If you are a small business owner, you probably know that the key to your success is not just driven by the number of customer transactions, but also the way you manage your money.

That’s why it’s important to pay close attention to how much money your company is spending versus how much it’s bringing in.

To help you with this, here are four money management tips.

Start Budgeting

If you have a business plan, you should also have a budget. A budget is guideline that helps you fix any holes in your cash management system.

Track expenditures and revenues, allocate funds to necessary spending accounts, and most importantly, watch your savings. Without a budget, you are driving blindfolded.

That’s why it is critical that you sit down and hammer out a plan to keep your company from going too far in the red.

Save, Save, Save!

Once you have a budget in place, one critical area of importance you need to focus on is saving money. There are tons of ways your business can save money by reducing unnecessary expenses.

It’s not just about stashing away what you earn from your business. It’s about being smart with your money. Check online classifieds like Craigslist for pre-owned office furniture. The money your save from buying used instead of new can be passed onto more important areas of your business.

Just as important as finding and buying pre-owned office furniture, there are ways to save by buying a used car for your business rather than relying on a new one. Used cars have a variety of advantages for business. Also, have your energy company audit your office for energy efficiency to help cut down your utility expenses.

Utilize your city government’s resources for economic development. They can help you take advantage of local tax credits as well as provide you with free resources to help you build a strategy for economic success. Take advantage of your local retailer’s cash rebate and rewards programs in order to get free or discounted office supplies.

Remember, you need to be smart with your money. Having a reserve fund or cash in hand to handle unforeseen business costs is the smart way to operate. Saving money smartly will help you do just that.

Hire a CFO

Hiring a Chief Financial Officer is one of two ways you can manage your money. CFO might be a fancy title, but if you can’t afford one, hire an accountant or an experience professional who can help you manage your finances.

They can take on the tedious task of tracking your business’ finances and alert you of any areas where your cash flow needs special attention. Hiring an accountant in-house or contracting with a local provider is a smart way to help your business stay financially healthy.

Create Strategies to Boost Cash Flow

Managing your money is more than just maintaining it. You also need strategies to help you boost cash flow and guard against times when business is slow.

Just like saving money, there are multiple ways in which you can increase the amount of cash flow. For example, you can provide discount incentives to customers or develop a rewards program to encourage customer customers to pay early. You can also add additional services in order to broaden your market appeal to customers within your industry.

You can even secure a line of credit for times when business is slow. The point here is that there are multiple ways to boost your cash flow in order to manage your business’s finances and achieve success.

Business might be about creating great products and services. But if you can’t pay your bills, you could be out of business. Manage your money wisely, and build a healthy business that benefits your customers, employees, and more importantly ‘You’.

Ten Financial Management Tips for Business Owners

main feeding books into brain with funnel financial management tips for entrepreneursEntrepreneurs are experts at wearing several hats and often manage many of their business’ operational functions. But without a background in financial management, even the most savvy business owner will struggle to learn the ropes and keep things organized. Here are ten financial management tips for business owners that will help keep operations running smoothly.

1. Keep your business and personal accounts separate

Separating your business and personal accounts is the best way to ensure you stay compliant with the IRS. Even if you are a solo entrepreneur and your finances are closely tied with your business operations, make sure you take measures to separate your personal and business finances by opening a business bank account, applying for a business credit card, and documenting any personal expenses incurred on behalf of the company.

2. Protect your personal assets

In addition to separating your accounts, there are added measures you need to take to make sure you are protected in the event of a lawsuit. If you’re not extremely diligent about managing your business as an independent entity, you could be risking your home and other assets. Make sure that all documents related to your business—i.e. invoices, contracts, purchase orders etc.—include your company name and are signed on behalf of the organization. You may also consider whether you need insurance. Here are some additional tips to help you make sure you’re protected.

3. Move your operations to the cloud

You will save a lot of time and energy by moving your accounting functions onto cloud-based applications. Consider using a program like Quickbooks or Xero to manage your basic accounting structure and use app add ons like Expensify, Zenefits, and Bill.com to mitigate shortcomings and make you  a well-oiled accounting machine.

4. Schedule your time

Spend 20-30 minutes each week keeping up with your accounting responsibilities. If you don’t schedule time, you risk creating a mess that will take a lot of energy to reorganize.

5. Know your cash position

A good CEO—not just CFO— knows their cash position at any given point in time. Create a reliable cash-flow forecast that you can use to help inform decisions about your business like whether or not you can afford to hire another employee, ramp up a marketing strategy, or increase production. We put together some tips about how to create both a long-term and short-term forecast in this webinar.

6. Call the experts

If you don’t have the know-how to manage your small business finances or you need a little help with the initial setup, get assistance from an outsourced accounting firm. There are companies who specialize in helping small business that don’t have the resources to hire a full time accountant, and they can be immensely helpful when it comes to showing you some best practices for managing your accounting processes. They’ll likely charge an hourly fee which will save you the payroll expense of an in-house employee and will help transition responsibilities when the time is right for you to hire.

7. Have a backup plan

Every small business owner faces a cash crunch at some point in the lifetime of their business. Don’t get caught in a situation where you can’t afford to make payroll because you’re waiting on slow-paying customers. It takes months to apply for a small business loan from a bank which could significantly impact your operations if you need a quick solution. Here are some creative financing options to consider if you need short-term working capital.

8. Pay your taxes on time

Small business taxes can be complex, but don’t procrastinate just because you’re dreading the added expense of hiring a professional. You risk incurring significant fines if you miss the deadline. Mark your calendar and remember that you can file for an extension if necessary. Here are some tips on how to efficiently manage your taxes including recent updates to filing requirements that you should know.

9. Communicate

If you do find yourself in the middle of a cash shortage and don’t have money to pay some of your bills, reach out to your creditors to discuss a repayment timeline. Don’t make the mistake of risking your business relationships because you shut off communication until the money came through. Business owners understand the complexity of managing a growing organization and will often be more understanding if you let them in on the situation. If you have proof that cash is  on the way and you can pay them shortly, bring that to the conversation. Here are a few additional tips about how to talk to your creditors.

 10. Pay yourself!

90% of entrepreneurs underpay themselves in an effort to roll investment dollars into initiatives that will help the business scale. Remember that if you’re operating a business, working 80 hour weeks, and not paying yourself a salary, your business isn’t profitable. Determine what the market-based wage is for your position and pay yourself the appropriate amount.

8 Financial Management Tips for Small Business Owners

Running a small business is never easy. It seems that there are an endless stream of problems to deal with and administrative tasks to be taken care of. However, there is a way through the fog that can descend over business owners who feel like they do not know which way is up.

What can be especially difficult is keeping a tight rein on the financial side of things. Often business owners lack the experience with accounts, having never worked in an accounting firm before and so make many rudimentary mistakes along the way.

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Here we outline some financial management tips to help small business owners navigate the tricky financial waters so their businesses can thrive:

#1. Create a Realistic Budget

Financial budgets within a business are often treated like a chore and an unnecessary piece of paperwork to handle. This is not the case at all. Just like with a business plan that is only good on paper until the business gets off the ground, a budget at least lays out what the financial plan is moving forward.

It acts as a guiding hand rather than locking the owner into certain decisions ahead of time. A budget can also indicate more clearly whether projected income levels will be sufficient to handle the ambitious capital expenditure plans to expand the business in the coming year. This can then highlight whether marketing needs to be pushed harder or expansion plans need to be scaled back if it is not believed that sales will support the desired level of spending.

#2. Don’t Treat the Business Like Your Personal Piggy Bank

Whilst it can be tempting to buy a fancy company car or an upgrade to the latest computer hardware, one of the biggest mistakes a young business can make is spending too much in the early years. Overspending beyond the expected numbers from the budget (see above) can create a shortfall which business cash-flow may be insufficient to handle. Lines of credit may also not be available from the not-so-friendly local bank and all of a sudden the business is in a financial crisis of its own doing.

Put yourself on a salary and learn to live on that amount. If the business makes a reasonable amount of profit, consider paying out an end of year dividend to the shareholders to distribute a portion of the profits while reinvesting the rest towards the future growth of the business.

#3. A Place for Everything and Everything in its Place

Do you know where all your invoices, credit notes, bank statements and other financial documents are located? Are any missing? Lost or incomplete records can create a major problem for an organization. Computerized records ensure that should the business premises suffer a fire overnight, the accounting records won’t be lost if there are computer backups off-site or accounting is conducted online in the cloud. QuickBooks is an excellent solution for the desktop and cloud-based accounting needs of small businesses.

#4. Managing Debts Effectively

When businesses are run partly using financing to expand, this debt needs to be managed well. Business debt management is something that needs to be properly understood including knowledge of the different finance options available for small businesses and how much the financial solutions will cost.

#5. Maintain Separate Business and Personal Accounts

It can be tempting, especially for new business owners, to not bother to keep records separate between business finances and their personal affairs. Whilst this might seem like a simplistic and simple way to handle things, ultimately it can create a confusing mess for any accountant who has to deal with the problem later. If paying for an outside bookkeeper to run through the numerous personal transactions, it can also be quite costly to process the account statements to isolate what is related only to the business. Keep accounts separate from the start and avoid the problem altogether.

#6. Run a Lean Operation, Not a Flashy One

Fixed costs are things that cannot be avoided once the money has been spent. For example, some businesses decide to buy the building that they operate from even though it will sap their available cash to do so and may require a business loan to complete the transaction. Only later do they hit hard times and really need to pull the money back out that has been sunk into the commercial real estate.

Keep costs lean by avoiding as many capital expenditures as possible. Do you need the fastest computers or to upgrade them every two years? Do employees need to travel to branch meetings or can they meet virtually over a group Skype connection instead? Don’t wait for times to be tough to start cutting back. That is when it is too late. Always be lean with the expenses so that there is flexibility to tighten the belt further when the economy is not doing so well.

#7. Don’t Expand the Staffing Too Fast

Employees are great to have, but they ramp up the costs to the business really fast. There is the salary, the taxes, desk and other furniture, computer, etc. The indirect costs of each employee can actually exceed the salary.

Consider outsourcing, either in-county or internationally, in order to avoid many of these associated costs. Pay per task or per hour. Freelancers effectively pay for their own office space, equipment and internet connection, plus they will often cost less than the real cost of the equivalent employee. It is also possible to hire different freelancers for small jobs consisting of a few hours only rather than trying to find one person who can do everything which is an impossible thing to find.

#8. Keep a Tight Rein on Accounts Receivable

Ensure that as the business expands, the accounts receivable doesn’t expand too much with it. At the very least, be careful to ensure that the average number of days that invoices are outstanding doesn’t grow over time along with expansion. Keep a keen eye on the money that is due to come in and make sure that it does. You don’t want any bad debts because companies slow-walked the payment right before they went into receivership.

Managing the finances of a business takes discipline, systems and controls, and the desire to manage them well. Keep business separate from personal accounts, and don’t be afraid to use plans. You don’t have to stick to them but they will help you.

6 Tips for Managing Small Business Finances

calculatingEvery company, big or small, is always concerned about one thing – managing money. Proper financial management is crucial to surviving a volatile economy and the industry competition. Small businesses, especially, need to exercise caution with their financial decisions from the very beginning. It takes more than just a good idea to run a business. Every business needs a financial structure that generates a profit to stay credible.  Entrepreneurs need is to be equipped with good money management abilities to turn their venture into a success story.

Not all business owners, however, are adept at handling finances. But that doesn’t mean all hope is lost.

Here are 6 tips for managing small business finances.

  1. Educate Yourself

One of the first things that you should do is educate yourself about the various aspects of finance. For starters, learn how to read financial statements (if you don’t already know how). This is one important statement that tells you all about your money – where it originated from, how many hands it changed, and where it is.

Financial statements contain 4 essential details – cash flow statement, income statement, balance sheet, and statement of shareholders’ equity. The cash flow statement analyzes operating activities, investments, and financial in/outflow. The balance sheet provides information related to the company’s assets, liabilities and shareholder’s equity. The income statement reflects the revenue earned within a specific period of time. Shareholder’s equity represents the amount by which the company is financed through common and preferred shares.

  1. Separate Personal and Business Finances

Always keep your personal and business finances separate. This entails getting a business credit card and putting all related expenses on it. This should help you track your outlays and keep you in control.

You will also do well in opening a savings account dedicated to your business, wherein you can transfer a certain amount of money from each payment that you receive and gradually build a considerable corpus. You can use this money to pay taxes.

  1. Cut Costs

It is important that entrepreneurs stay tight-fisted to keep their expenses in check without hampering customer satisfaction. This, especially, holds true for small businesses.

Every business endures 2 types of costs – fixed and variable. While fixed costs have to be borne irrespective of whether your business is making money or not, there is scope for savings in variable costs.

For example, instead of buying costly branded software, you could work with free, cloud-based, open-source software, which is equally good. Conduct free online calls, video conferences instead of travelling lost distances. You could also try bartering your services with other professionals and cut costs.

  1. Invest in Cloud-based Accounting Software

While you can definitely download regular accounting software to manage your finances, it will never give you the kind of convenience cloud-based accounting software can.

Web-based software provides you with real-time insights as most allow you to store, update, track, and access data from anywhere at any time. Whether you’re at home, office or are travelling, you can conveniently work with your data from anywhere you like. It is error-free, hassle-free and dependable.

  1. Monitor and Measure Performance

It is crucial that you, as a business owner, keep tabs on the movement of your money, especially when large amounts are involved. Keep looking at your company’s financial performance in comparison to the past financial statements to project your future revenue, expenses and cash flow.

Being aware of these aspects will help you make informed decisions for your business.

  1. Hire Professional Help

Everyone needs help, especially a budding entrepreneur interested in making a huge success of his venture. Sometimes, it pays off to engage the services of an expert, even if it is on a part-time basis. They can help you determine where your business is, where it is heading by using and analyzing your data. Make sure you hire someone you trust, though.

Whether it is tax planning for the next financial year, or payment for the current year, their expertise can go a long way in guiding you and bringing you peace of mind.

Managing Your Personal Finances as an Entrepreneur: 14 Tips From Leading Experts

There’s no doubt about it that being a successful entrepreneur requires a lot of expertise in a lot of different areas. Arguably one of the most important aspects to becoming a successful business owner is having your finances in order; after all, with no money, you’ve got no business. So, to help aspiring entrepreneurs take their next step towards building their empire, we’ve asked 16 expert entrepreneurs for their best piece of advice for managing your personal finances. Here’s what they had to say:

1. Diversify!

“Diversify. Diversify. Diversify. I know that’s canned advice you would hear from almost every other “financial expert,” but it rings especially true for entrepreneurs. Here’s something you might not want to admit to yourself: your entrepreneurial venture has a greater chance of failing than succeeding (gasp!). By diversifying and placing funds into another side business, alternate investments, or just setting aside cash, you will give yourself breathing room in the event that you have to call it quits or need to pivot to another business. In my own experience, I have been able to diversify into other ventures that operate independently of each other and that has led to constant growth and more exciting opportunities.”–Jeff Rose, GoodFinancialCents.com

2. Plan For Inevitable Rainy Days (Or Months)

“Since many entrepreneurs have to deal with irregular income, it’s important to budget your personal finances around that to make sure that you have savings that you can draw from in the leaner months. You need to know that you can cover the essentials like housing, utilities, insurance, and food. So add up those critical expenses and put aside enough to cover at least a couple months.”–Tom Drake, Canadian Finance Blog

3. Plan For Your Future

“Don’t forget, you should still be saving for your retirement. Even on a fluctuating income you should aim for a small bit of savings each month. A good starting point would be to open up a Roth IRA and contribute the max each year. If you want to do more, consider a SEP IRA or Solo 401K account, which will help you shelter a lot of your business income from taxes.”–Philip Taylor “PT”, Founder, FinCon, PT Money: Personal Finance

4. Separate Business Funds From Personal Funds

“When you’re an entrepreneur starting your own business, it can be a good idea to keep your personal finances and business finances separate. Not only will it give your business more credibility and a sense of legitimacy, but in some cases it may also help reduce your personal liability were something negative to happen down the road. It will also help you to be organized when it comes to paying your taxes, managing your bills and other payments.”–Peter Anderson, Bible Money Matters

“It’s simple but vital: Keep business and personal accounts separate and document profit distributions to yourself. As a one-person business, I didn’t set up separate accounts soon enough. The CEO of a 10 or 100 employee business wouldn’t use corporate accounts as his own; why would somebody running a company of one or five?

Not only do separate accounts make tax-time easier, they’re essential if you want to sell your business or you face litigation or bankruptcy. In the worst case, intermingling personal and business accounts may negate the protections offered by your business structure.”–David Weliver, Publisher, MoneyUnder30.com

5. Keep Your Expenses Below Your Income

“Never forget that expenses rise to meet income. This is the gist of Parkinson’s law. This is the reason that a couple months after most people get a raise, it feels just as tight financially as it did before the raise.

Without an intentional effort, houses, desks, kitchen sinks naturally get messy and cluttered. We have to take action ON PURPOSE to keep things clean and organized. The same ON PURPOSE effort needs to be made to keep our expenses BELOW our income.”–Bob Lotich, ChristianPF.com

“Since you probably have a budget for your small business, make sure one is in place for your personal finances as well. It can be easy to let managing your own money fall through the cracks while trying to grow and expand your endeavor. Use a website like Mint (it’s free) and enter in accurate amounts for your monthly bills. You’ll probably need to estimate your income unless it is consistent. Then, work on reducing all monthly bills. Your ultimate goal is to get your spending under your estimated income. Once you have a surplus, use it to pay down your credit card debts, start or improve your emergency fund, or set it aside for your retirement.”–Andrew Schragemoneycrashers.com

6. Automate Your Bill Payments

“When you’re spending every waking minute on building a business or releasing a product it’s easy to overlook personal bill payments. Automated payment services that let you setup specific rules for each bill and alerts for exceptions allow you to put your bills on auto-pilot and focus on your business. If you use a credit card you can help avoid leaking money via fees and interest by setting up spending limit, payment due, and late payment alerts.”–Ben Edwards, Money Smart Life

7. You Get What You Pay For

“Hire the best people, not the cheapest. If someone is willing to work for free, say no. You want someone devoted to the project, not someone who regards it as a passing hobby that they can tackle in-between episodes of Dancing with the Stars.”– Paula Pant, Founder, AffordAnything.com

8. Protect Your Most Valuable Asset

“Many entrepreneurs overlook their need for disability insurance even though their ability to earn an income is their most valuable asset. Stop thinking “it won’t happen to me” and know that it could. (The Council for Disability Awareness has some great stats here). Ask yourself how your family would live without your income or what you would do for income if something happened to you. What are your options? Are you protected? (Note: Life insurance is also very important if there are other’s dependent on your income).”–Mary Beth, www.workablewealth.com

9. Maximize Retirement Savings Options

“Those that are self-employed have significantly more options when it comes to retirement savings. Beyond traditional 401k and IRA plans, the self-employed should consider SEP IRAs, individual 401k plans, and even defined benefit plans. These alternatives enable entrepreneurs to save significantly more for retirement in tax-sheltered accounts. For example, a SEP IRA enables a self-employed individual to sock away up to $52,000 this year for retirement. With a defined benefit plan, some are able to save more than $100,000 a year in a tax-deferred account.

Some of these options can become quite complex. As a result, it’s best for entrepreneurs to contact a tax or retirement specialist to understand which alternative is best for them.”–Robert Berger, doughroller.net

10. Take Your Business On A Money Date

Check in with your business budget often by establishing a money date ritual. Each week I take myself and my business out to lunch where I review my accounts, create reports, and update my financial goals. It makes doing mundane financial tasks like paying quarterly taxes, or putting together monthly reports, a lot more fun and less of a drag. I actually look forward to getting out of the office (and indulging in a sweet treat afterwards), where I list out positive business accomplishments that have occurred over the past week or so. A money date is the perfect opportunity to reflect on what you’ve accomplished, where your business is now, and where you’re headed.”–Carrie Smith, carefulcents.com

11. Seek Out Professional Tax Advice

“Spend some time and money on getting professional tax advice from someone who works with small businesses and entrepreneurs. There are many tax savings to be had if you know what to look for. On the flip side, you can get yourself into trouble very quickly if you don’t know what you’re doing. Critical areas to look out for include reporting income and expenses, home office deductions, hiring employees vs. contractors, and more. It’s money well spent (and will often pay for itself!).”–Ryan Guina, Cash Money Life

12. Strive To Smooth Out Cash Flow

“Consider your personal finances like you would a business. A business has access to credit in order to smooth cash flow for various operations. As an entrepreneur, your income might be variable, so having some sort of mechanism in place to smooth cash flow in your personal finances makes sense. I have a low-interest personal line of credit connected to my checking account. If a client pays late, or if there are other problems, all of my automatic payments are made smoothly. Usually, when the money does come, I can then pay off the line of credit immediately–without ever paying interest. Smoothing out cash flow in your personal finances is just as important as smoothing it out in your business.”–Miranda Marquit, www.MirandaMarquit.com

13. Keep Your Business Expenses In Line

“Don’t go overboard with your expenses! There’s this myth that expensing something magically moves the expense to a tax-free wonderland but the truth is you are still paying for the expense. With income coming in and a company credit card it’s easy to let your profits slip away with small expenses. Run your venture lean and only spend on what you need for the business.”–Glen Craig, Free From Broke

14. Negotiate Everything

“When it comes to business, make sure you negotiate everything. Contact your credit card processors, your suppliers…contact everyone and renegotiate your terms on a regular basis. Everyday, our business is constantly bombarded with new vendors offering their services at competitive rates. Make sure you strike a conversation and pit your existing vendors against the new ones and you can save tens of thousands of dollars a year.”–Steve Chou, mywifequitherjob.com

There you have it–personal finance tips from the pros that will help you build the business of your dreams. Remember, as most of these experts explained, success is all about striking a balance with your finances. If you are cheap, you’re not going to get quality results, but if you’re too extravagant, you’re likely to end up in the red and ultimately fail. Be smart, be frugal, and put money into things that will grow and you will be well on your way to success.