Managing a small business can be overwhelming when you are getting off the ground. You will need to put in your time and labor on enhancing your products and services, attracting customers, hiring employees, and other marketing activities. In this wild run, you might miss out on a pivotal aspect, financial planning.
A well-thought-out plan is pivotal for small businesses. This blog revolves around the art of financial planning and some tips for the good financial health of small businesses.
#1 Know your financial standing
Finances are the backbone of your small business. So, the first step is to know where you stand. By doing this financial health check-up, you will understand your cash flow, assets, liabilities, loans, taxes, income, and expenses. You will get a clear picture of your present and future monetary status. With this information at hand, you will be able to make adjustments in your business to manage your cash effectively. You can make incremental changes to your cash flow only when you understand the economic health of your small business.
#2 Record your expenses
You can start planning with something as simple as recording your day-to-day expenses. You must have a clear record of your expenses, utilities, mortgages, and every financial movement in a spreadsheet. And with these precise numbers, you can do the analysis and synthesis of profit-loss statements, and other statements to forecast and plan your small business finances.
You can supplement your bookkeeping with bookkeeping tools like SaasAnt Transaction to bulk import your invoices, bills, receipts, refunds, customers, and more. You can also export and delete piles of transactions in QuickBooks with just a click of a button. With such automated tools, you can get precise numbers and interpret them to make accurate and reliable cash-related decisions.
#3 Set clear business financial goals
Mingling your personal and business goals might hurt one or the other. Of course, you are running your small business to make money to achieve your personal financial goals. But not distinguishing your personal and business goals might end up compromising one for the other.
When it comes to distinguishing monetary goals, it is not just about separating finances with different checking accounts. The vision and goal setting has to be different, in the first place.
#4 Analyse your funding options
Small business owners generally use their personal funds as their only source of capital. They even tend to bootstrap which is putting money back into the business at the time of a cash flow crisis. Bootstrapping can seem to be an instant savior when it is financially viable.
But if your small business is capital investive, exhausting your savings and credit lines might put in a greater risk later. You can be a bit diversified when you are looking for additional funding sources.
You can bring in equity and get a good or service in return. Business loans, recurring sales, and customer pre-sales can also add to a constant cash flow.
#5 Try the 50/20/30 rule
Sean Brown of YCharts suggests the 50/20/30 rule to plan and manage finances. 50% of the after-tax payments should be spent on small business needs. 20% of it should be spent on what your business wants, and the remaining 30% should be used to pay off your debts and savings.
Half of your finances after you pay off your taxes can be spent on urgent needs for your business, one-third on your savings and debts, and 20% can be spent on good-to-have for your small business.
#6 Strategically save some money
The goal of every financial plan is simple – saving some money and the end of the day. Budgeting and planning boil down to having a solid sum of savings. Keeping aside a certain percentage of income is a smart way of savings. And you should make sure to raise the bar when your income bulges. You will thank yourself for making this saving later sometime.
#7 Have a flexible budget
You cannot predict every single hurdle in your financial future. So you must make sure that your budget is flexible and rolling. You can trust your numbers, but be always ready to manage surprising monetary needs and emergencies. A rolling budget and forecasting your finances give you the confidence to manage your cash flow fluctuations.
#8 Set your short and long term financial goals
If you are a newbie to small business and budgeting, you must make sure that you balance your short and long-term goals. Most of the time, small businesses tend to focus on managing finances for the fiscal year. But it is equally important to keep an eye on your long-term goal. Every step you take forward today is progress for tomorrow.
#9 Different bank accounts for different purposes
Small businesses usually have different accounts for personal and business transactions. But it is suggestive to use separate accounts for different business transactions. You can use one for normal monthly transactions, which includes your recurring bill payments and other auto-debits. Another account to hold your savings. The third account is to draw cash for your weekly expenses. But make sure you don’t mix them up. Record all your transactions precisely, preferably with an automated application.
#10 Find an advisor
Get insights from an advisor. Do not hesitate to go knocking on the door of an advisor to fill in what you don’t know in planning. Make sure the advisor is a specialist in goal-based financial planning, and an expert in technology and applications in the background to make your small business planning easy and effective.
#11 Optimize budgeting tools
Setting up a business budget and sticking to it is an important part of financial planning. If your goals are not specific, time-bound, measurable, achievable, and realistic, it is hard to stay on the course. You can take advantage of popular budgeting apps to construct a SMART budget for your small business. These apps can help you stick to your budget with forecasts and reports.
#12 Cash Flow Analysis
A consistent cash flow helps you manage your current obligations. Performing a cash flow analysis at regular intervals keeps you informed about any cash flow fluctuations and the overall cash flow status of your small business. With this cash flow analysis, you can predict and make arrangements to manage your lean months and fill cash flow gaps.
#13 Get grips on tax obligations
Tax seasons come around each year. It is not a smart choice to wait for the last date to file taxes. As a small business owner, you will have to make assertive moves and be prepared for tax seasons. With proper records, you can plan your taxes well in advance and plan your write-offs easily. By doing so, you will know how much to pay and if you have enough money to pay them or plan what you can do with the excess money. Planning for your taxes earlier will help you pay your fair share of tax, not a penny less or more. Also, you can make arrangements prior.
How Automated Bookkeeping Can Help In Financial Planning
By automating bookkeeping, small businesses can save time and money that had been previously wasted on manual data entry methods. Take advantage of automated bookkeeping tools to keep your finances in order. Let us see how.
Integrate your Amazon, Shopify, and WooCommerce store to QuickBooks and sync all your sales and transactions into QuickBooks as they happen. Put your bookkeeping on autopilot and sit back in the breeze while PayTraQer takes care of your numbers.
You can sync all your sales, invoices, payments, receipts, refunds, bills, and every other financial movement through your payment system with PayTraQer. As all the interaction happens between systems you always get 100% accurate books all the time.
With access to real-time data, reports, and intuitive dashboards, understanding your small business’s financial health is fairly easy. You can also determine and forecast if any operational shifts potentially hurt your cash flow. With confident numbers, you can analyze and make wiser decisions proactively.
With the tips outlined in this article, small business owners can rest easy knowing they have a finger on the pulse of the financial health of their company. This keeps them focused on other important tasks like working on business strategies, marketing aids, and customer experiences.
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