So, you’ve started a new business. First of all, congratulations! Starting a new business is an exciting and rewarding experience. But it also comes with a steep learning curve.
One of the most crucial aspects of running a successful business is keeping accurate and up-to-date financial records. Whether you are a sole proprietor or have a team of employees, accounting plays a critical role in ensuring the long-term viability of your company.
Say, for example, that you’re running the smallest of businesses: a food truck. You sell your wares at markets and festivals and after a while; you have a small team of people working under you, and you become so well-established that you’re approached by a person or another company who wants to use your business model to make a franchise.
It’s your dream come true, but you have no records to show that the business has been making a profit. You don’t have any separate accounts and you’ve been relying on unrecorded cash sales. At this point, the investors decide the risks outweigh the potential for growth and they pull out.
If you want to avoid a situation like the one above, keep reading for more tips on how to stay ahead of your business’s finances.
1.Set Up a Separate Bank Account
One of the first things you should do as a new business owner is to set up a separate bank account for your business. This account will help you to keep track of your revenue and business expenses, as it will be separate from your personal finances. In turn, this will make it easier to manage your accounting.
This also means that it’s easier to see how your business is running, even if you just take a quick glance at your statements. You can easily categorize your income and expenditure and see where there could be problems in your business model.
Mixing business and personal finances can also lead to legal issues. If you’re running a business, it’s important for your company’s functioning to be transparent when and if you’re audited. A lot of people unintentionally commit tax fraud when they’re first starting out, and this can land you in seriously hot water.
2. Keep Detailed Records
Good record-keeping is essential for any business owner. But it’s especially important for new businesses. Keep track of all of your financial transactions, including receipts, invoices, and bank statements. Consider using accounting software to help you manage your records.
There are plenty of freemium accounting software options available that allow you to use the basic features for free and scale up to paid tiers that unlock additional features as your requirements increase. Much of this software also operates in the Cloud, so you have less risk of losing data and can access your information from anywhere in the world.
3. Monitor Your Cash Flow
Almost 70% of small business owners battle with cash flow challenges. Cash flow is the lifeblood of any business, so it’s essential to monitor it closely. Keep track of your cash inflow and outflow, and create a cash flow forecast to help you anticipate future cash needs.
This isn’t just because understanding your business is key to its success, it’s also because tracking your growth is exciting! Seeing how your profits increase in the first few years of running a business provides a sense of accomplishment and a reason to continue on in your journey.
4. Stay Up-to-Date on Tax Obligations
As a business owner, you’re responsible for paying various taxes, including income tax, sales tax, and payroll tax. Make sure you stay up-to-date on your tax obligations to avoid penalties and fines and to get the best possible refunds.
Even a small infraction or tax violation can cause a huge headache. This is one of the reasons it’s important to have a trustworthy tax consultant. These laws can take a long time to get the hang of, and changes may come seemingly out of the blue if you’re not constantly up to date on tax regulations.
5. Plan for Major Expenses
As your business grows, you will likely have to make major expenses, such as purchasing new equipment or hiring additional staff. Ensure that you budget correctly and plan for these expenses in advance, and make sure you have the funds available to cover them.
6. Secure Emergency Credit
It’s no good applying for credit when you’re already in financial trouble or you urgently need funds to keep your business afloat until a payment comes in. As a new business, your margins are likely quite tight, so you need to be prepared should you need funding assistance.
Ensure your books are up to date, that your accounting processes are organized, and that you’re eligible for a loan should you need it. If you don’t ever need it, great! But knowing the funds are available because you’ve stayed on track with your accounting can give you great peace of mind.
7. Seek Professional Assistance
Running a successful business requires a broad range of skills, including accounting. If you’re not confident in your accounting abilities, don’t hesitate to seek professional help. Consider hiring an accountant or bookkeeper to help you manage your finances.
8. Understand the Basics of Accounting
Even if you plan to outsource your accounting, it’s important to have a basic understanding of accounting principles. This knowledge will help you make informed decisions about your business’s finances and communicate more effectively with your accountant.
Learning the vocabulary your bookkeeper is using means you’ll be able to gain far more valuable information through your communications with them. If you don’t have the time to do a lot of research, don’t be afraid to ask them questions about how they handle invoice processing and other processes, what certain words and phrases mean, and anything else you might need to know. It’s always better to ask!
Being Financially Savvy Leads To Success
Whether you’re;legitimizing your side hustle, turning a hobby into a new venture, or establishing a start-up, accounting is an essential aspect of running a successful business. By following these eight tips, you can stay on track with your accounting and ensure the long-term viability of your company.
Remember to keep accurate records, monitor your cash flow, and call on a professional when needed. With a little effort and diligence, you can master the art of accounting and take your business to new heights.