As a business owner or CEO, managing finances effectively is a critical aspect of running a successful venture (and it’s not just us financial people shouting this from the rooftops — all business experts agree). Where do you start? What are the guidelines? How can you do this easily and without being overwhelmed?
In this article, you will learn about the importance of paying yourself first and maintaining good credit as an entrepreneur. We’ll also discuss effective bookkeeping techniques and how to handle late-paying customers using alternative payment methods.
We dive into the significance of establishing internal financial protocols, keeping personal and business finances separate, monitoring Key Performance Indicators (KPIs), hiring qualified bookkeepers for your business, creating budgets based on monitored finance records, the benefits of partnering with Credit Unions, and conducting yearly reviews of your company’s finances.
This comprehensive guide aims to provide valuable insights into managing finances efficiently as part of our 10 best practices for getting your business financials in order. By following these 10 best practices for getting your business financials in order, you can ensure your small business’s money health now and into the future – laying the foundation for impact for generations to come.
Let’s unpack each in detail so you can be equipped and informed to handle your money well, whether you as the CEO are still playing the CFO role or you’re preparing to delegate it to an up-and-coming team member.
1. Paying Yourself First
As a small business owner, it’s crucial to understand the importance of paying yourself first. This is the main theme of the Profit First method, which we not only preach at JMD Business Solutions but implement with our clients. This strategy ensures your personal financial stability and also sets a healthy precedent for managing company finances as you grow.
Let’s face it — running a business is tough. But it’s even harder when you’re not seeing any monetary return on your investment.
By paying yourself first, you’re making sure that you have a stable income to rely on, massively reducing stress and increasing your excitement to keep the business growing.
Neglecting your own financial stability in the face of managing a business can be all too easy. But the truth is, personal and professional financial stability go hand in hand.
Self-compensation is essential. When you treat your own salary as a necessary expense, you’re more likely to make smart financial decisions and keep your spending in check, leading to better overall money management.
Incorporating wise strategies into your routine can kick-start a rise in productivity and success. Remember, paying yourself first isn’t selfish, it’s smart.
2. Maintaining Good Credit
As a small biz owner, keeping your credit in check is crucial for success. It opens doors to funding opportunities and builds trust with suppliers and customers, so let’s explore some strategies to help you achieve good credit for your business.
The first step toward good credit is paying off debts promptly. Making timely payments on loans, credit cards and other financial liabilities is essential. Regularly checking your credit report helps identify any discrepancies so you can take corrective action if needed.
Prompt debt settlement does more than maintain a healthy credit score; it frees up resources for future growth opportunities. Less debt means more money to invest in areas like R&D, marketing, or expanding operations.
3. Effective Bookkeeping
Managing your books effectively is crucial and one of the biggest concepts preached in the Profit First method. It not only keeps track of your finances but also helps you make informed decisions about the future. If your business struggles with maintaining consistent cash flow, by keeping a close eye on the books and using the story that your money is telling you, you can make wise decisions for now and the future.
Organize and stay current with all dealings to maintain efficient bookkeeping. Use accounting software like QuickBooks to record sales, expenses, payroll costs, and more. Keep receipts for all business-related purchases and ensure that every financial transaction is accurately recorded. Utilize the Profit First method for allocating funds into their proper buckets and watch your financial health improve.
Incorporating these practices into your bookkeeping routine will lead to better management within the firm and make tax time less stressful (and doesn’t everyone want that when dealing with Uncle Sam?).
Remember that effective bookkeeping isn’t just about recording numbers; it’s about understanding what those numbers mean for the health of your business.
4. Establishing Internal Financial Conventions
To have a strong business, you have to have a strong financial foundation. Wise entrepreneurs achieve this by implementing internal financial conventions or protocols. This simply means that they’ve created financial guidelines to guard the health of the business and give support to making informed decisions.
Setting clear procedures provides several benefits for your business. It helps maintain discipline across all of the decision-makers, reduces accounting errors, and ensures compliance with regulatory standards.
These practices make it easier to track revenues and expenses while providing valuable insights into your company’s performance that you can use to make future decisions. Money is always telling a story, and the savviest of all entrepreneurs use this story to make decisions that grow the business.
The Role of Protocols in Tax Reporting
A well-structured financial system can ease the burden of tax reporting. By keeping good records throughout the year, you’ll be prepared when tax season rolls around. This means less scrambling for receipts or invoices at the last minute – saving time and reducing stress levels of your team members (and you!).
- Create a budget: A detailed budget will guide spending decisions and help prevent overspending on non-essential items.
- Maintain regular bookkeeping: Regularly updating books allows you to monitor cash flow effectively.
- Schedule periodic audits: Audits provide an opportunity to identify discrepancies or issues before they become big problems.
Incorporating these best practices into your daily operations can lead to improved control over finances, as we’ve seen in so many of our own clients’ businesses.
5. Keeping Personal And Business Finances Separate
The SBA advises that keeping personal and business finances seperate can help to avert taxation troubles and make it simpler to track accounting.
You should do this not only for clarity but also for legal reasons as mixing funds could jeopardize your limited liability status in case of a lawsuit or audit.
How Separate Banking Aids Effective Money Management a la Profit First
To effectively manage your money, we recommend opening separate bank accounts and credit cards specifically meant for business use. This Profit First approach ensures clear visibility into company costs while preventing usage of personal funds for professional purposes.
- Create a checking account used for handling income & expenses related to the business.
- Select a credit card that will be exclusively used towards expenditures linked with the business.
- Avoid using either account towards non-company related bills or purchases.
6. Monitoring Key Performance Indicators (KPIs)
By tracking KPIs, small businesses can stay informed of their financial health and make better future-focused decisions.
What are KPIs? Simply put, they are the stats and data points that help you as a business owner determine if your business is growing, plateauing, or stagnating. By deciding which metrics are important to your specific business model, you can track and see longterm how your business is performing.
Online Accounting Tools for Small Businesses
Thanks to technology, small businesses can now monitor their KPIs with ease using online accounting tools. QuickBooks, Xero, and FreshBooks are just a few examples of software applications that offer features like expense tracking, invoicing, and KPI reporting.
Real-Time Access to Critical Data
With KPI reports generated from these tools, you can access data like revenue growth rate, gross profit margin, and operating cash flow ratio in real-time. This offers not only a time-saving benefit but also the ability to take proactive actions.
- Gross Profit Margin: This metric measures profitability after considering cost-of-goods-sold (COGS).
- Cash Flow Ratio: This metric helps a company understand if it can pay off its short-term liabilities with readily available cash or liquid assets.
- A/R Days: The average number of days customers take to pay their invoices – shorter A/R days indicate better cash flow management.
Monitoring KPIs using online accounting tools is an efficient way for small business owners to stay in control of their finances and pave the path toward sustainable operation.
7. Hiring Qualified Bookkeepers For Your Business
Running a small business can feel like spinning multiple plates at once (and all the CEOs said “amen”). Managing your finances can be very challenging and time-consuming and if you’re overwhelmed by this task, it’s time to consider hiring a qualified bookkeeper.
A certified bookkeeper is an expert in handling financial records and transactions and has the expertise to guarantee that your financial documents are precise, up-to-date, and in accordance with tax regulations. By entrusting the task to an expert, you can use your time more efficiently on other areas of business operations.
- Error Reduction: A trained eye reduces the chances of costly errors in your financial records.
- Tax Compliance: Certified bookkeepers stay updated with changes in tax laws, ensuring compliance for your business.
The Impact on Operational Efficiency After Employing Professionals To Handle Finances
Hiring professionals not only helps maintain accurate financial records but also improves operational efficiency. With experts handling finance-related tasks such as payroll management or invoice processing, you can focus more on strategic decisions that drive growth for your company.
At JMD Business Solutions, we offer comprehensive solutions tailored specifically to meet individual businesses’ needs. We assist them in monitoring key performance indicators (KPIs) effectively through advanced technology tools while maintaining good credit scores and prompt debt settlement practices, which ultimately leads to sustainable profitable operations.
By bringing in support, you’re no longer consumed with overwhelm and can get strategic advice to help you make informed decisions that drive the growth of the business forward.
8. Creating a Budget Based on Monitored Finance Records
In the world of small business, budgeting is crucial for an accurate picture of your business’s financial health. Using past financial data, budgeting involves making educated decisions about future income and expenses.
By analyzing past data, you can identify trends in revenue and expenditure, helping you forecast the future more accurately.
Predicting future income and expenses allows for allocation of resources within your business. You’ll be able to anticipate potential shortfalls or surpluses ahead of time, allowing for adjustments as needed in real time.
The next step after creating a budget is resource allocation. When done well, this step ensures that every dollar spent contributes to achieving your goals.
- Savings: Allocate funds towards savings for unforeseen circumstances or growth opportunities.
- Growth Investments: Invest in areas that promise high returns, such as marketing initiatives or new product development.
- Critical Operations: Ensure enough funding is allocated to maintain smooth day-to-day operations.
This approach helps keep finances under control while paving the way for sustainable operations – ultimately leading to profitability and success.
9. Partnering With Credit Unions
As a small business owner and CEO, it’s crucial to explore all avenues that can help improve your financial health. One such avenue is partnering with credit unions. These non-profit organizations are known for their customer-centric approach and competitive loan options.
Credit unions often offer lower interest rates on loans and fewer transaction fees compared to traditional banks. By choosing a credit union over a conventional bank, you could potentially save significant amounts of money over time.
10. Yearly Review of Company Finances
At the close of each fiscal year, small businesses should assess how they’re doing financially, create a plan for future growth and update backend operations. Regular reviews can help ensure a smooth process when audit and tax filing times come around each year.
Embracing Technological Advancements
You might consider embracing technological advancements like Software-as-a-service (SaaS). SaaS offers the ability to utilize tech without large upfront costs, allowing for more flexible budgeting. Integrated planning and budgeting suites are beneficial as they facilitate online banking and automate payments.
Retirement Planning: A Vital Aspect
Retirement planning is another aspect that business owners should consider. Setting aside at least some pretax income in a tax-advantaged savings plan can secure you a comfortable retirement while also offering tax benefits.
Maintaining Legal Status and Multiple Income Streams
Reviewing your legal status is a smart move; changing from sole proprietorship to S corporation or LLC could bring additional benefits. Additionally, developing multiple income streams can further bolster your financial security.
Avoid Overburdened Debts and Insurance Updates
Avoid getting overburdened with debts – smart handling of liabilities is critical for survival and profitability. Also, conducting recurring full check-ins on insurance policies safeguards against unforeseen circumstances.
By implementing these tactics, you can improve overall control over your enterprise, paving the way for sustainable profitable operation.
FAQs in Relation to 10 Best Practices for Getting Your Business Financials in Order.
How to organize your business finances?
Pay yourself first, maintain good credit, separate personal and professional expenses, monitor KPIs regularly, and hire a certified bookkeeper. Use JMD Business Solutions services for effective financial management, CFO services, and advisory support.
What are the financial practices of a business?
Accurate bookkeeping, internal finance protocols, and budget creation based on monitored finance records. Partnering with Credit Unions can also boost profit levels.
What are financial best practices?
Regular review of year-end finances to strategize growth plans and embracing technological advancements like Software-as-a-service (SaaS) that provide access to advanced technology on a pay-as-you-go basis.
Why is personal financial advice important?
Personal financial advice can help you manage your money, create a budget, save for retirement, and invest wisely. Get advice from a certified financial advisor for your personal financial situation.
In conclusion, these 10 best practices for getting your business financials in order will not only provide stability but also set your company up for success now and into the future.
- Pay yourself first to ensure personal financial stability.
- Maintain good credit to access funding and favorable terms.
- Implement effective bookkeeping to track income and expenses.
- Establish internal financial protocols to ensure consistency and accuracy.
- Keep personal and business finances separate to avoid confusion and legal issues.
- Monitor key performance indicators (KPIs) to track progress and identify areas for improvement.
- Hire qualified bookkeepers to ensure proper management of finances.
- Create a budget based on monitored finance records to plan for future expenses.
- Partner with credit unions for access to financial resources and support.
- Yearly review of company finances to identify trends and adjust strategies accordingly.
By consistently following these practices, you can make informed decisions that will help grow your profits and ensure the long-term sustainability of your business.
Ready to take your first step toward putting profit FIRST in your business?
I challenge you today to start taking your profit first. Starting with your next deposit, save 1% of that deposit into a saving account and watch that account begin to grow with each deposit. This is the first step of your profit journey, Congratulations! Share your profit wins with us at firstname.lastname@example.org!
You’re invited to reach out for a discovery call to see if you would be a good fit for one of our services or programs.
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