Small business owners juggle multiple responsibilities including managing their finances. Whilst bookkeeping may not be the most thrilling part of business ownership, it can be one of the most pivotal parts of making your business either a complete success or a total failure.
Business owners often look for financing to help their company along. Although securing funding can be a bit intimidating, doing plenty of strategic research and preparation can make the process simpler. Reading our list of do’s and don’ts may help you make the best decisions about small business financing.
Do Plenty of Planning
Good financial planning will help you make sound financial choices. Your planning should include:
- Sales forecasts
- Expense budgets
- Projected balance sheet (assets vs liabilities)
- Break-even calculations
- Projected income analysis
All of these tools will help you better schedule bill paying, payroll, and other tasks. You’ll also want to be using some type of invoice tracking so you can be sure customers are paying on time. Don’t let your invoices go ignored because your business will eventually end up in a deficit.
Good business owners do plenty of financial planning to avoid overspending, extra fees, and overdrawn bank accounts. Ongoing discrepancies in cash flow can damage the long-term success of your business.
Do Track Your Financial Records
Be sure to have a good system for filing your financial records. When it comes time to borrowing money, most lenders will ask you to give them multiple documents such as bank statements, past bills, expense receipts, sales forecasting, etc. Managing all the paperwork can be a drag but it will save you time when you’re ready to get a business loan. Some business owners rely on accounting control software (like XERO or Sage) to track their financial records.
Do Borrow Only What Your Business Needs
You may be pleasantly surprised to find the lender will give you a large amount of cash. Although that may be great news, please don’t get carried away and accept more money than what your business needs.
It’s a really good idea to talk with a financial planner about the purpose of the loan. The financial planner will want to know if you’ll be using the cash to hire new employees, expand the building, or upgrade equipment. You can talk with the finance whiz about how much money is enough to get the job done.
Whatever dollar amount takes care of your current business needs should be the amount borrowed and no more. You don’t want to ask for too much money and find yourself stressed about repaying a large loan.
Don’t Stress About Debt
Opening a credit line, securing a credit card, or accepting a business loan can be great but also stressful. Borrowed money must be paid back eventually and that’s where the worry develops. New or small businesses may face future challenges that make it difficult to cover credit or loan payments.
Following the first two tips will help make sure the money you borrowed is reasonable and you have a solid plan for repayment. Should business slow down or other challenges develop then you shouldn’t be afraid to talk with your lender or investors about your debt and make special arrangements.
Don’t Forget Taxes
The Australian Tax Office (ATO) is holding businesses accountable for overdue tax debts. Plus new federal tax laws impose severe penalties for those companies that don’t pay tax levies. Keeping up on your tax obligations can’t be put at the bottom of your “to do” list.
Staying on task with financial paperwork like accurately recording business expenses and revenue will make tax filing easier. You can also rely on accounting software (e.g. Cloud Computing) that can simplify things for you. Or you can hire a tax professional to make sure there are no costly mistakes, to make the whole process go a lot quicker, and possibly save you some money as well.
Don’t Mix Personal With Business Finances
Small business owners should be careful to keep business finances separate from personal finances. By doing so, you’ll avoid a lot of headaches. Co-mingling financials will make your business books inaccurate and misleading. Remember that lenders, investors, accountants, auditors and others may need to review your ledgers and you don’t want them to be confused.
Start by using a different bank account for your business. This will help develop the credit history of your small business and potentially give you even better borrowing power. Plus tax time will be a lot easier since your deductible expenses aren’t lost among your personal matters. One last thing to consider is having proper public liability insurance. Visit this website to find out more.
