There is nothing more exciting than making that first sale or obtaining that first client for your new small business. After all your hard work, your “baby” is off and running. To keep that momentum going, however, you need to put some clear money management practices into action. Here are five tips to get you started.
Keep Accurate Records
Get into the habit early and you will prevent problems later. Be scrupulous about your dividing your business and personal expenses, for instance. It may seem like it doesn’t make much difference in the beginning, but you will be in trouble at tax time if you don’t separate your own expenses from your business expenses.
One way to make this task easier is by opening a credit card account for business expenses and by maintaining separate business checking and savings accounts. Apply for an Employer Identification Number (EIN), a tax number specific to your business, with the IRS. This process is free, and by using this number on your financial accounts, you will gain some protection against identity theft.
Use cloud-based software and apps designed for small businesses to help you keep your records and receipts organized. Here are a few good options:
- FreshBooks: Easy to use and small business-friendly, FreshBooks is a hosted accounting service that you can access on a mobile device or on your PC. It offers options for expense tracking, online payments, taxes and accounting reports. You can customize invoices, send late payment reminders, track expenses, manage multiple projects and create profit/loss reports.
- QuickBooks Online: This software offers many features that make running a small business easier. You can create invoices, download bank transactions, access business data and track sales and expenses on any mobile device. Another useful feature is the ability to print checks and export data to Microsoft Excel.
- Zoho Books: If you have five employees or less, Zoho Books is a great choice. It gives you all your basic needs – invoicing, creating reports and banking tracking expenses – but it also gives you the tools for growth. It’s super easy to set up and manage – even if you don’t think of yourself as a number cruncher.
Monitor Cash Flow Closely
It sounds simple—make sure you have more money coming in than you have going out – but if your cash flow is suffering, your new business can go underwater in a hurry.
To boost your cash flow, consider offering clients a discount for early payment of their accounts. If a customer is behind on payments, cut back on service until payment is made. Check out new software programs and mobile apps that allow you to see your cash flow in real time, to create and send invoices, to pay bills and to reconcile bank statements. Many of these programs have free trials so you can see if they are right for your business needs.
- With Kashoo‘s cloud-based accounting software, for example, you can manage invoices and track expenses on your smartphone, tablet or computer. You also can easily share books with your business partner or accountant.
- Intacct’s cloud-based accounting software lets you examine your cash flow from many angles. It can generate customized reports on profits and losses and specific product revenue histories to help you plan for the future.
Save Money Wherever You Can
You have many fixed costs with your business, like what you spend for rent or for inventory, but you can look for ways to save on your variable costs. Here are a few ideas:
- Lease equipment. If you lease your computers, for example, you can continually trade them in for new technology without a large up-front investment. Consider leasing large furniture and machinery. Repairs and maintenance are usually included in the lease agreement, and you can deduct leasing costs on your business tax returns.
- Barter for some professional services. If you run an accounting service, for example, could you provide a tax return for a marketing company in exchange for its services for your website?
- Cut down on travel costs by holding web-based meetings and interviews or skype conferences.
- Look for rebates and incentive programs at office supply retailers.
- Ask about volume discounts from suppliers.
- Consider an energy audit of your workplace to cut energy costs.
- Use social media for low-cost marketing.
Estimate and Pay Your Quarterly Taxes
As a small business owner, taxes may not be a once-a-year thing. Consult the IRS website to find out information on tax withholding and estimated tax. Most small businesses are required to send in an estimated tax payment, using Form 1040-ES, by April 15, June 15, September 15 and January 15. You may also have to pay additional self-employment taxes, including the Medicare tax and the Social Security Tax.
Pay Yourself First
As a new small business owner, it is natural to think of paying yourself after everything else—staff salaries, utilities, rent and other costs—is taken care of. However, if you cannot afford to pay your own salary, your business will not succeed. Even if you currently have a cushion, get into the habit of paying yourself a salary. You can start with a modest amount and increase your salary as profits grow.
Be sure to record the money you pay yourself in your accounting software or talk with your accountant so that you can properly claim your salary when you file business taxes.
A final tip is to get help from others whenever you need it. You don’t have to go it alone. Network with other professionals in your industry through trade organizations and join community groups that put you in touch with other small business owners in your area. Look for small business workshops offered in your area or online to learn more about money management tips.