Starting a small business is one of the most exciting things in the world, but it can also be one of the most intimidating. From establishing your target audience to getting the tools you actually need to start selling, it takes a rare amount of determination to see this sort of dream come true.
One of the most daunting aspects of running a successful business is managing all of the financial responsibilities that come with the role. This can be especially challenging for those that don’t have a background in finance, as all of the technical language and fine details behind money management can make it seem very easy to fall into a bad situation.
If you find yourself worrying about the finances of your own small business, you’re not alone. Thousands of small business owners go through the same thing every year, and fortunately, there are several ways to be your own accountant so that you never have to worry about falling behind or losing what you’ve worked so hard to build up.
1. Learn the Basics
Before you get started with the more complicated aspects of managing your business’ finances, it’s essential to understand the fundamentals and lay a strong foundation. One great way to start is by setting up a bank account strictly for your business. That way, you can have some separation from your personal finances and establish a system of organization for taxes and other expenses.
Once this groundwork has been laid and you’ve at least set up a checking and savings account for your business, it’s crucial to establish a bookkeeping system that best works for you.
Develop Your Bookkeeping System
Effective bookkeeping can mean many different things for different business owners, but a great way to get started is to make sure every piece of documentation is organized. Properly filing your receipts is a great way to get started, that way, you have an idea of your expenses as they relate to your personal finances and any tax-related matters over time.
Once this baseline is established, you can figure out exactly how you want to bookkeep. Small business owners will often do their own bookkeeping using computer software, as it cuts down on the cost of hiring an outside accountant. It might be tricky to get the hang of at first, but once you’ve put yourself into an effective bookkeeping rhythm, everything else can start falling into place.
2. Make Things Easy for Yourself
Small business accounting isn’t always easy, but that doesn’t mean it always has to be difficult. It can be easy to get so stressed about money management that you worry yourself into a bad situation, but there are a few ways to make bookkeeping painless and straightforward so that you can focus on delivering your services.
Set Up a Simple Way to Get Paid
The most important part of running your business is making sure that you’re being paid for all of the hard work that you’ve put in. Fortunately, tools like Quick Collect for Accountants and Square for Retail are great ways to ensure that your flow of income stays consistent. A dedicated payment schedule can also keep everything organized, so you don’t lose track of when money comes in from clients.
Separate Personal and Business Finances
While you may feel very attached to your small business, it’s important to create a layer of separation between your personal and business finances. Not only can this help you better organize your business finances and get a better sense of how much money is coming in and going out, but in the unfortunate event that something goes wrong with your business, your personal finances won’t take a hit in the process.
No one really wants to think about their small business losing money or falling on hard times, but creating a separation helps to keep you secure on a personal level.
3. Establish Tax Procedures and Obligations
If there’s one thing that can cause the most stress when running a small business, it’s understanding all of the tax procedures you have to follow when filing your finances.
While a brick-and-mortar small business will only have to worry about taxes for the specific area they’re in, e-commerce can get tricky. Business owners in the United States essentially fall into two categories; they’ll either charge tax based on where their business is located or where the consumer is located. This all depends on the specific state laws on sales tax, and small business owners must figure out where they fit in to avoid any audits or repayments.
When it comes to tax obligations, it all depends on how your business is classified. If you’re self-employed, you’ll claim business income on your personal tax return. These taxes need to be personally withheld as there is no employer to withhold them for you. It might seem intimidating at first, but putting away a percentage of your income into your business’ savings account with every payment should keep things in order.
4. Keep Track of How Much Money is Coming In and How Much is Going Out
Starting a small business is a great way to establish an independent line of income, but it can also come with several expenses that begin to pile up over time. It’s imperative that you keep track of both aspects to ensure you’re getting all the money you should and that your expenses aren’t overtaking your income.
Calculate Gross Margin
While you may see some income when you first start your business, it’s essential to see that income continue to grow so that your business can grow as well. Calculating your gross margin is the best way to improve your overall income, and it’s as easy as determining how much the cost of producing your goods is and comparing that to the actual revenue gained from selling your goods. This can be done with the following formula:
Gross margin (%) = (revenue – COGS) / revenue
The higher your gross margin, the more you’re actually making from your small business efforts.
Keep an Eye on Expenses
Owning a small business can be expensive, especially when you’re first starting out, but that doesn’t mean you’re cursed to constantly run a deficit while trying to fulfill your dreams. A great way to ensure your business stays afloat and your bookkeeping stays simple is to limit expenses wherever possible. Not only will this keep more money in your accounts, but it will cut down on the receipts and other documentation that you’ll have to keep track of.
5. Don’t Be Afraid of Expansion
So, your small business has been doing well, and you’ve become confident with managing your finances. That’s great! But there’s one other thing, you’re growing faster than anticipated, and the thought of expanding your business fills you with the same stress you had when you first got started. Just like before, there’s no need to panic, as there are several ways to expand your business without losing control of your finances.
Set Up a Payroll System
If you’ve reached the point where you can hire outside help, setting up a payroll system can be a great way to make sure your employees get paid when they’re supposed to. This can also make withholding taxes much easier, as you’ll have the proper documentation to make sure that exactly the right amount of money is being taken out every time.
Apply for Outside Funding
It’s nearly impossible to predict when something might go wrong with a small business, whether it’s a personal fault of the business owner or the consequences of a volatile market. Regardless, securing outside funding can be an effective way to keep your business from going under, whether it’s through a small business loan, a line of credit, or a new business partner. These forms of outside funding can also give your business a boost so it can grow at a faster rate, allowing you to fulfill dreams you never thought possible.
Establish Accounting Partnerships
If you find that the responsibilities of accounting are becoming too strenuous, there are small business accountants that can assist with bookkeeping and other forms of financial planning. Building a partnership with these financial experts can be a great way to give your business an edge and allow you to place a greater focus on selling the goods that motivated you to start the business in the first place.
6. Periodically Review and Revise Your Methods
More than anything else, one of the best ways to ensure that your business’s finances remain in line is to review your bookkeeping and make changes when necessary frequently. If you begin to notice any inconsistencies, or you just don’t like how things are progressing, narrow down the source of the issue as soon as possible so that it doesn’t grow into a bigger problem down the road.
Managing a small business can be difficult, but it’s never impossible. All it takes is some carefully measured steps and a bit of grit to set you on the path towards success.