10 tips for managing small business finances

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Let’s face it—managing a small business takes work. Between managing employees, overseeing marketing and advertising, and ensuring you have free time outside your job, handling finances on top of everything can be tough. But, managing finances allows your company to thrive—and makes your business less likely to fail. If you’re feeling overwhelmed and are unsure where to start, below are 10 tips for managing small business finances:

1. Be sure to pay yourself

If you own a small business, it can be tempting to put all your money into daily operations. After all, the extra capital can go a long way in helping your business’s finances grow. But, you want your business and personal finances to be in good shape, so it’s crucial to pay yourself. There are two main ways to pay yourself as a business owner: salary and owner’s draw.

With salary, you pay yourself a regular salary as if you’re an employee, withholding taxes from your paycheck. This is required for businesses structured as S-corporations, C-corporations, or limited liability companies (LLCs) taxed as a corporation. With owner’s draw, you draw money from profits on an as-needed basis. Paying taxes up front every time you draw is not required, but you should set aside money regularly to budget for your tax bill.

Pay yourself a fixed percentage of your business’s net profit, which is revenue minus all operational expenses. This ensures you meet business obligations first, like paying employees.

2. Separate personal and business banking accounts

One crucial element to managing small business finances is to separate personal and business accounts. Separate accounts make it much easier to oversee funds and handle taxes. Open a business checking account and a short-term savings account, like a business savings account or money market account. Georgia’s Own offers various business checking and savings accounts designed to work for your business needs. There’s even a Business Account Comparison tool to help you along your decision process.

3. Use a business credit card

Similarly, you need a business credit card to keep your daily purchases separate from business purchases. Business credit cards make tracking expenses easy and accounting less complicated. You don’t need to sift through your credit card statement to determine which purchases were personal or business related. It’s also easier to get records together if you’re audited.

Business credit cards don’t sit on your credit report, either. Your business line of credit sits separately from your personal credit line, so your utilization rate doesn’t affect your credit score. However, most applicants experience a two- to five-point hit on their credit score because financial institutions use your credit report to assess creditworthiness. Another thing to keep in mind is if you default on a business credit card, the issuer can come after you, as your credit guarantees those cards.

4. Have a reasonable budget

Having a budget helps account for every cent that comes in and out of your business. To start your budget, make a list of expected monthly income sources, like any payment made in exchange for a product or service rendered. Next, make a list of expenses incurred, such as inventory, payroll, insurance premiums, taxes, overhead, or debt payments. Having a budget will allow you to plan out expenses, reach business goals, and anticipate operational changes. There are various budgeting styles in business, so it’s best to determine which method works best for your business.

5. Understand cash flow

It’s critical to understand where your money goes when running a business. Poor cash flow management or poor understanding of cash flow causes 82% of small business failures. You must have tight expense controls—and if your bills exceed the cash you have on hand, you have an issue with cash flow. Create a cash flow statement to analyze your financial health and update it monthly. This will help avoid unnecessary bank account overdrafts or overspending. If you use Excel, there is a free cash flow template to help you get started.

6. Practice good bookkeeping techniques

Bookkeeping allows business owners to keep track of all financial transactions conducted within a certain period (usually monthly). Practicing good bookkeeping techniques allows you to keep an accurate track of your income and costs. You can bookkeep using a traditional ledger book or software like Quickbooks or Xero. There are free options available, too. Before deciding on an accounting program, think about your operations. Figure out if you need to send invoices, whether you want mobile access or access for multiple users, credit card processing integration, and more.

7. Set money aside for taxes

Setting money aside for taxes will help you save big in the long run. There are a few tips and tricks for determining how much money you should set aside for taxes. You’ll need to pay federal taxes, including self-employment tax and income tax. These are paid quarterly to the IRS. If you hire employees, you’ll also have payroll tax. Depending on your business, you may have to pay state and local taxes, like sales tax, franchise tax, or property tax. You can learn more about state-specific taxes by visiting your state’s tax authority website.

A general rule is to set 30-40% of your business income aside to cover federal and state taxes. You can put money into your short-term savings account for your small business taxes as often as you want. Tax obligations for businesses vary, so consult your CPA to determine how much you should set aside.

8. Don’t be scared of loans…

Loans can be intimidating, but they can boost your business when used responsibly. Without an influx of capital, it can be hard to purchase equipment or grow your product line. Small businesses are also eligible for SBA loans. SBA loans help small businesses grow by allowing borrowers to obtain long-term operating capital at a reasonable cost, including longer terms or no prepayment penalties. They can be used for business start-ups, expansion, equipment purchases, and more.

9. But keep good business credit

While you shouldn’t be afraid of loans, you should keep your business credit in good standing. As your business grows, you may want to purchase more commercial real estate or equipment or additional insurance policies. Getting approved is difficult with poor business credit. Be sure you pay off debt funding as soon as possible. For example, don’t let business credit cards run a balance for more than a few weeks or take out loans you can’t afford. Only seek funding you can easily and quickly repay.

10. Schedule time to stay organized

One of the easiest ways to manage your small business finances is to stay organized. Set aside time each week or month to keep finances in line. This includes adding data to any financial software you use, scanning receipts, filing paperwork, or invoicing. Set aside 15 minutes to an hour each week to ensure your finances are in line.

You can even set aside time to update your own finances, as you want both your business and personal finances to be in order. For example, you can set aside 30 minutes one day of the week to take care of any financial housekeeping for your business. On another day, you can work for 30 minutes on any personal finance issues.

We know that managing your small business takes time, effort, and money. With the above tips, we hope it makes your business finances seem less daunting. At Georgia’s Own, we believe small businesses are the pillars of our community—that’s why we offer a comprehensive suite of products aligned to your business needs, from business checking and savings accounts to treasury management solutions and commercial loans. Whether you’re just getting started or are an established business, our experts are here to help.

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