Elaine Co is a a Chartered Professional Accountant, and fellow entrepreneur who helps small businesses with their bookkeeping and taxes. View profile
As an entrepreneur, there are always a million other things that seem more important than managing your business finances. From updating your website to creating that next social media post, it’s easy to let your accounting and finances fall by the wayside.
However, if you are serious about growing your business, managing your business finances is something you need to prioritize.
Knowing your numbers is key to growing your profits.
By knowing your numbers, you’ll understand what’s working in your business and what’s not, and make adjustments before it’s too late.
The truth is, no one is going to care more about your business than you. You need to be your own CFO.
Here are some guidelines to follow to manage your business finances as your own CFO.
1. Stay up to date with your bookkeeping
Having up-to-date bookkeeping is the foundation of getting the financial side of your business organized. It provides you with the tools and knowledge to make smart business decisions that will ultimately increase your profits and grow your business.
This starts with having a system to track your income and expenses. This can either be done in a spreadsheet, or in an accounting software like Quickbooks Online.
If you’re a new entrepreneur in the side-hustle stage with a small number of transactions, a spreadsheet will typically be sufficient. However, if your business has more complex transactions or if you’re in your business for the long haul, I strongly recommend investing in software.
What happens when you ignore your bookkeeping?
- You don’t catch mistakes in time which can cost you time and money.
- You’re stressed come tax time when you’re stuck with doing a year’s worth of bookkeeping at once.
- You miss deadlines and pay unnecessary penalties and interests.
Regular bookkeeping allows you to be proactive with your decisions, and plan for what’s coming up.
An important part of bookkeeping is making sure you have the proper documents and records to support your revenue and expenses.
Organizing and storing your receipts is a must. If you are ever audited, the government will want to see the invoices and receipts to back up what you’ve put through your tax return.
If you find yourself ignoring your bookkeeping because you’re too busy running the day-to-day operations of your business, consider outsourcing your bookkeeping. The investment will be worth the gain.
2. Analyze your numbers every month
Your numbers tell the story of how your business is doing.
After your bookkeeping is done for the month, the next step is to analyze your numbers.
Take a look at your revenues, expenses, and net profit. Then pull up your accounts receivable and accounts payable reports.
These are some of the questions you should ask yourself:
- Were you profitable last month? Or did you have a loss?
- What was your highest revenue stream and how can you focus more on it?
- What was your biggest expense? Is this contributing to your business, or can you eliminate or reduce it?
- How much do my customers owe me and should I be following up with any of them for payment?
- How much do I owe my suppliers, and do I have enough cash to make the payments?
It’s so important to go over your numbers each month and strategize on how you can improve them next month.
If you work with a bookkeeper or accountant on an ongoing basis, it will be especially helpful to work on this exercise together.
3. Have a cash flow plan
I’m sure you’ve heard of the phrase “cash is king”. This is very much true, and running out of cash is one of the top reasons businesses fail.
Set up a cash flow plan that includes the timing and amount of cash coming in and cash going out, so that you can predict things like:
When will you run out of cash and will need to invest money into the business from personal funds?
Or the opposite – when will you have a cash surplus, so you can reinvest back into your business or pay yourself back?
This can simply be done in a spreadsheet. You don’t need any fancy apps or software.
A good cash flow forecast or plan will ensure you’re able to pay your bills, pay yourself, and set aside money for taxes.
4. Understand your tax obligations as an entrepreneur
A common mistake made by new entrepreneurs is not understanding what their tax obligations are.
As a business owner, things such as sales tax, income tax instalments, and payroll taxes come into play that new entrepreneurs don’t realize.
Do you need to register for, collect and remit sales tax?
Do you need to make estimated tax instalments? If so, when are the due dates?
How much taxes do you need to set aside each month so you’re not hit with a huge tax bill you weren’t prepared for?
These are just some of the questions you should know the answers to.
Knowing your obligations and taking care of these ahead of time can save you headache and unnecessary penalties and interests down the road, and most importantly, help avoid mistakes.
Make sure you do your research or consult with a professional to get educated on your tax obligations.
Remember, bookkeeping and dealing with your business finances isn’t something you do once a year just to file taxes.
Make it a part of your monthly to-do list where you sit down and go over what’s going on in your business.
Take the time to understand your business numbers. Look at them regularly, and use them to make smart business decisions that will help you reach your goals.
Short Article Review
- As a business owner, managing your business finances is a must if you want to grow your business and profits.
- Take the time to understand your numbers and make it a priority to analyze your numbers every month.
- Staying up to date with your bookkeeping is the foundation to getting your finances organized and will make tax time less stressful.
- Monitoring your cash flow allows you to be proactive with your money. By having a cash flow plan, you can control the amount and timing of your cash ins and outs.
- Make sure you understand your tax obligations as an entrepreneur. Getting educated in this area will save you headache and penalties, and most importantly, help avoid mistakes.
The content in this article is for informational purposes only and is not intended as legal, tax, investment, financial or other advice. Always seek the advice of a licensed professional regarding any financial questions you may have.
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