Small business owners wear a lot of hats. If you’re like most, that means you’re probably covering many jobs some of the bigger companies have specialists for, such as accounting. Managing your business finances may be simple at the onset, but as you grow, making sure everything is handled correctly becomes increasingly important and more challenging at the same time. Check over this list to see which best practices you’re following, and learn how to fix the ones you’ve overlooked.
1. Separate Business and Personal Finances
More than half of all small business owners are using a joint account for their personal and business funds, according to Business Insider. This makes it challenging for business owners to prove the company’s financial status, including expenses and revenue. This has implications come tax time as well. “It’s easy to file business income on a personal tax return, but it’s not a best practice,” CPA Andrew Laufer told the online magazine. “You can miss deductions and increase your audit risk because income or expenses are often misreported.”
2. Document All Expenses
When you’ve got lots of little expenses, they can add up big. It may seem small and harmless — a fuel top off here, a business lunch there, but failure to log these things makes it harder to track expenses, so you miss out on claiming them come tax time. It also makes it hard to track cash flows, meaning your business could run out of money.
3. Schedule Weekly Bookkeeping Time
As the old saying goes, if it doesn’t get scheduled, it doesn’t get done. Even if it only takes you 20 minutes per week to gather receipts and log everything, that time investment will prove invaluable at some point and will save you money in the long run.
4. Follow Up on Receivables
All too often, invoices go out, but cash doesn’t come in, or it may take months to see it. If a client hasn’t paid by their scheduled due date, they need a reminder. At Interstate Capital, we help tackle this with our invoice factoring service.
5. Monitor Cash Flow Trends
Many small business owners focus more on generating revenue than they do on monitoring. Although this may seem natural, monitoring cash flow — the trends and the projections — are essential in order to avoid running out of cash at a pivotal time. For example, funds should be set aside to manage seasonal shifts and cash should be available to cope with purchasing needs; especially large purchases, like equipment.
6. Use Automation and Outsourcing when Possible
Those who build strong companies have strong teams behind them. Outsourcing certain business processes to professionals ensures that things are managed properly, enabling the business owner to focus on growing the business. In the modern age, automating tasks cuts down time and can reduce costs, too.
7. Reconcile Monthly
Even if you’re exceptionally diligent about tracking all your inflows and outflows, mistakes can happen: an overlooked zero, decimal or even a lost receipt. If you aren’t comparing your numbers with the banks, even minor errors will snowball until you have a crisis. If you’ve chosen to automate, your accounting software may handle reconciliations for you, but if you’re doing it on your own, be sure to match things up at least once per month.
Leverage Invoice Factoring to Establish Bookkeeping Best Practices and Streamline Processes
Invoice factoring makes certain bookkeeping best practices, such as following up on invoices, a seamless process. When you work with Interstate Capital, we do this, and also provide you with access to your data 24/7, so you can monitor your cash flows and make better predictions about inflows. Learn more about how we can help by downloading our free invoice factoring guide.