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© 2016 Small Business California

Tracey Clayton
Jun 13

4 Effective Steps to Organize Your Small Business Finances

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Financial management is the most important aspect of running a successful business, even though it is not the only crucial piece of the success puzzle. Your financial structure and strategy make the foundation upon which you can expand your business vertically and horizontally, a foundation that can support your innovation strategy, acquisition and retention, and of course, the cumbersome marketing campaigns you can’t do without.

To achieve all of your short-term and long-term goals, you need to be able to manage your finances meticulously, and optimize your revenue while cutting extraneous expenses as much as possible. Otherwise, the financial leaks might drive your business into the ground. Here to help you prevent that are the four effective steps you can take to organize and optimize your small business finances.

Keep your personal and business assets separate

The first thing all small business owners have to keep in mind is that your business expenses are not deserving of your personal expenditure. In other words, it’s essential to keep your professional and personal finances separate in order to A) minimize legal liability, B) protect your personal assets from bankruptcy, and C) keep a clear book of every expense for tax purposes. If you tap into your personal savings in order to bail out your business or support it in any way, you are running the risk of losing your livelihood and your company.

To avoid this, make sure to keep these two separate. You can achieve this easily by using your business debit card exclusively for business purposes, and your personal credit card for, of course, personal expenses. Don’t forget to put 25% of each business-related payment into your business savings account, in order to create a tax fund for when the tax season arrives.

Define your budget and operating costs

 

 

It should go without saying that you need to have a realistic budget and financial structure in place. These will provide the foundation and the framework for all of your future financial investments, and will allow you to identify the key areas of your business you need to invest in first. More importantly, creating a realistic budget will allow you to allocate funds wisely into the most lucrative areas of your brand.

Firstly, settle on your minimal operating costs. How much money do you need coming into your company every month in order to meet your payroll expenses and keep the lights on? Now, assess how much money you need to invest in talent acquisition, expansion, or marketing? Compare these findings with your current cash flow, and then proceed to optimize your account payables and receivables.

Monitor accounts payable and receivable closely

If you are to manage your finances like a pro and allocate funds towards growing your business over time, you need to understand exactly where the money is coming from, and where it’s going. Most importantly, you need to know how much is coming in and how much money you’re “losing” on a monthly basis. To achieve this, you will need to work closely with your accountants, which is something that entrepreneurs operating in the booming New Zealand market have mastered in recent years, so take note.

The New Zealand market has become a fertile ground for new up-and-coming businesses, but small business owners understand that they need to work closely with their local chartered accountants from NZ in order to stand a chance against the bigger brands in the industry. An accountant is not just there to run their books, rather they serve as a finance professional who can help guide and steer the company in the right direction.

If you are to take anything away from New Zealanders, it’s that you need to have a skilled accountant at your side, someone who is versed and experienced in the local laws and regulations. The last thing you want to do is to navigate the financial waters all on your own.

Optimize your entire payment structure

 

 

You need to have money coming into your company on a regular basis without a hitch. Unfortunately, getting paid for your products or services can be a difficult and time-consuming task, as clients and customers can often delay payment or ignore their commitments completely. As a small business owner, you cannot afford to chase down clients or lose a paying customer.

To avoid these scenarios and maintain cash flow, you can always optimize your invoicing strategy and send your invoices early with a next-day reminder. You can also take advantage of invoice factoring in order to get paid ahead of time, without jeopardizing your relationship with your clients and customers. If you’re working with recurring customers, you can also implement direct debit payment solutions in order to charge for your services automatically every month.

In closing

Running a successful small business is a cumbersome task that greatly depends on your ability to manage your company’s finances. Be sure to implement these solutions in order to stay competitive, and most importantly, ensure the long-term growth of your brand.

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