Spring Clean Your Business Finances
At the start of each year, we make numerous types of resolutions. Some are personal, and we hope to sleep better, work out more, laugh a lot, and eat better.
But when it comes to business, it is often to start a business or make more profits. Both are great, but one of the most practical resolutions you should be considering is making sure the finances from your business are in tip-top condition.
As a small business, you might not be able to cover the cost of an accountant – and to that end, there are plenty of options when it comes to accountancy tools to help you make the most of it.
It might take some testing before you find the accounting software that works for you, but you are likely to be pleasantly surprised with the options. Look for features that offer you the ability to track income and expenses automatically. Ensure that you can manually edit and work in multiple currencies.
If you send invoices manually, you might like to find accounting software that also offers the opportunity to send invoices on your behalf.
Here are some of the most used and highly reviewed accounting software:
- Wave Accounting
Some, but not all, offer the ability to track mileage, scan receipts, and freelancer or small business options.
It is time to look at all of the financial institutions that are involved with your business. If you receive into multiple accounts and pay into numerous accounts, this gets complicated pretty quickly.
Still, it is essential to take stock of each.
Look at where your receipts are – printed and in boxes or drawers? In your emails? Or perhaps you haven’t even downloaded them.
Are all of your invoices paid and up to date? If you aren’t keeping a close eye on your finances, you might have outstanding payments. This will impact your bottom line. Be sure that you have carefully inspected every element.
Make notes as you go so that when the time comes to start putting things in order, you can find everything quickly.
What are your financial goals for your business? It is often a good idea to set about a 10-20% increase in profits and reduce spending by a reasonable %.
Even with just a few months of information, you will have a good overview of the income and expenses that your business is incurring.
Using that information, you can make some realistic estimations about the potential profits and where you can cut costs.
Are your expenses getting out of hand? It can often be the case that suits, meals, travel, gas, and more gets put on the expenses and not considered at the time. If you have staff, do they also have expenses?
The software you choose should be able to help you put these expenses in order so you can see where some of your cash is going.
Never underestimate the power of doing your accounting every month. Most small businesses and freelancers like to leave it until the last minute and then tackle their taxes in one go.
One of the most significant issues with doing your taxes this way is that since you are doing it under pressure, you might be missing vital information and if you are you. You happen to get an audit – you will likely end up with a hefty fine plus interest.
It's not worth it, and to make things easier for yourself – tackle your taxes at the end of every month.
Personal and Business
Is there anything worse than trying to work out if a payment you have no recollection of was personal or business? Not really when it comes to your taxes and business finance. In the early months of running a business, personal money and business money overlaps. And if you remain freelancing, that can often be the case too.
After all, your profits usually go straight towards paying bills.
However, it is time to begin the detangling process and separate your business and personal finances.
Open a new account that is only going to be used for your business income and making payments. It might feel like extra work, but at the end of the first few months of using it, you will be happily surprised at the simplicity of having them separated. You’ll know what each expense is and know for sure that it wasn’t personal.
Printed receipts tend to stack up thick and fast, combined with invoices in your emails and floating around in online accounts – it can be messy. Doing this every month can feel like a search and rescue mission.
Instead, make it a weekly task. Get all of your printed receipts and start scanning them, adding them to a single folder on your computer – and adding them directly to the accounting software you are using.
Tracking all of your expenses is just smart business, especially since it is your expenses that can drive down your overall tax bill.
Does your current inventory match up with your sales? If you run a product business, there is a certain % that makes it waste. The product isn’t perfect, or it is beyond its use-by date. That is to be expected.
However, you need to look specifically at what you have sold vs. what you have in stock.
Compare your balance sheet, purchase orders, and anything outstanding.
If you notice any discrepancies, you need to investigate the matter immediately. It might be that some stock has gone missing, you have not received the amount you purchased, or there has been an error in the sales report.
If you took credit cards out early in the business but haven’t used them – consider if you need them at all. Or, if you did use them, then make it a priority to pay them down and close any you don’t need.
You can also consider moving your balance to a card with a lower rate.
Most small businesses will need a loan from time to time. A bridging loan is often the first option as it is a short-term solution that can help a small business navigate a difficult situation. If you have considered a loan for your own business, calculate bridge loans here.
The budget from your early days vs. your budget now has probably gone through some significant changes. Take a look at the initial budget you had for your business and decide if you should be making modifications.
It could be that you wish to lower the spending and tighten the reins slightly, but upon review, you may also notice that you have more room than you thought!
Adjust your budget in a way that makes sense to your potential profit margins.
There isn’t a single thing you can negotiate on when it comes to business. You should be sure that you get the best rate for anything you pay for. Take a look at all of the payment terms you have, including rentals, leases, subscriptions, and even with your suppliers.
Take a look at other providers on the market, and make some notes about the cost and services elsewhere. Use this as leverage for your negotiations.
It is not just your business finances that could do with a spring clean. There are often many positive changes you can make within your business to generate a higher profit. Check out this post; 4 Essential Business Upgrades for 2022 | Infolific.