Being a business owner means juggling about a hundred things at once. From serving customers to cultivating products, and managing employees, there always seems to be something to get done. Somewhere in the mix, financial management should happen seamlessly, but too many business owners wait until crisis time to fill their coffers. Unfortunately, at that point, it’s scrambling time.
The businesses that seamlessly cruise along year after year aren’t doing anything magical. They’ve cultivated a financial foundation that supports all other elements of their growth and sustainability. It’s not a matter of being a mathematical whiz or an extreme software devotee; it’s a matter of getting the fundamentals and remaining consistent with them.
Record Keeping Like You Mean It
One of the most important yet extremely boring aspects of the financial foundation is record keeping. However, good record keeping doesn’t mean throwing receipts into a drawer and calling it a day; it means establishing the systems in which one can access those notes when the need arises.
Good record keeping starts with separating business and personal expenses. One bank account for business. One bank account for personal expenses. When bank accounts are separate, making sense of the money and where it’s going and coming from becomes much simpler.
The other component is to remain up-to-date on bookkeeping efforts. Those who allow months and months of neglect to create hurdles down the line are only building frustration. When you can review finances on a once-weekly occasion (which doesn’t amount to that much time), catching mistakes early on or spotting issues before they fester becomes easier. In addition, when you are aware of your current standing, trends that could help or hinder a business are much clearer from the outset.
Know Where Your Cash Goes
Cash flow is a term that a lot of people use, but in reality, cash flow should be understood when money comes in and when it goes out. A business can be incredibly profitable but still fail because bills come before the revenue comes in. For example, if a business has $50,000 in sales that will come in next month but their rent is due this week and they have no cash in hand, they’ve got a problem.
Smart businesses understand their cash flow intimately. They know which months are slow and which ones are busy, and they budget accordingly. Putting away excess money during busy times to sustain rental payments during slow moments is not glamorous, but it’s what keeps the lights on when necessary.
This is also where a tax accountant comes in handy. Having someone from the outside looking in truly helps bridge financial woes as they can see things you may not be able to see—from projections based on historical data to knowing trends in other industries, allowing them to act more proactively instead of reactively.
The Importance of Tax Management
When many business owners think about tax preparation or tax management, they think about it once per year—when taxes are due to be filed. However, the most successful businesses who handle tax complications do it year-round. They think about the tax implications when purchasing inventory, hiring employees, or investing in new equipment.
Tax laws also change from year to year. Deductions come and go; rules change; just because something benefited someone last year doesn’t mean it will help this year. Therefore, staying on top of regulations (and having someone else stay on top for you) is imperative so that no one loses money on the table or inadvertently breaks rules because they weren’t aware they existed.
Using Financial Decisions as Guideposts
More times than not, how an owner feels their business is going might be skewed from reality. Sometimes things feel like they’re going great because there’s much work being done but profit margins are shrinking or nonexistent; other times people panic because their money seems to dwindle but ultimately, they’re fine—they just don’t know how to manage cash flow.
By looking at financial statements regularly (even if they’re not regularly understood), small business owners don’t operate with blinders on anymore. They don’t have to suddenly become financial wizards; instead, gaining a fundamental understanding of profit and loss statements as well as a balance sheet can help owners make sounder decisions about what’s best and what’s not based on numbers rather than haphazard impulses.
The businesses that grow sustainably cultivate their growth based on trends seen in profit margin and cash flow developments; they’re not operating sustainably based upon random decisions but instead using statistical evidence that tells them what they should or shouldn’t do based on what’s more profitable than not.
Creating Systems for Growth
When starting out with one employee or as a sole proprietor, it’s easy to manage all aspects of financial development personally or with straightforward accounting software. However, as businesses grow, so do their needs—more transactions, more employees, more taxes, more everything.
Many decisions made early into business ownership become habits passed down through generations; it’s easier to maintain small systems early on while they’re still manageable than devoting excessive energy once things become cumbersome trying to rectify mismanagement of time. For example, make sure you’re using accounting software that’s applicable for larger systems down the road even if you don’t have tons of transactions. Ideally, get ahead of the game so you don’t need to worry about systems collapsing under pressure.
Final Thoughts
Think of your financial foundation as an actual building foundation; you see nothing once the structure is created above but yet everything you see is held up by what provides its structure and strength beneath it. If your financial foundation is neglected or taken for granted (or worse—fallen apart), eventually something’s going to crack.
If you value your customers this highly as a business owner, value your financial management equally and you’ll find yourself putting out fewer fires and nurturing growth into your business instead.
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