By: Jack Stieber
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Small business finance can be confusing for many startups. Properly setting up your financial books is vital for the success of any small business. Accurate bookkeeping will help you better manage your resources, find strategies to minimize debt and forecast economic trends to help you make the most returns from your investment. Additionally, you need accounting records for tax purposes.
Whether you choose to keep these records on your own or find a professional to help is up to you. But, as the small business owner, it is vital that you understand certain business finance basics. Here are the five small business finance basics you should pay particular attention to.
Maintain records of business revenue and expenses
Revenue is the money coming in while expenses are monies going out of the business. You must always record these figures. For revenue, write down how much is coming in and where it’s coming from. For expenses, record how much was spent and what it was spent on.
Document all cash expenditures
Very often, small businesses spend cash and later can’t account for the expenditure. It is important to record all transactions so you’ll have an accurate accounting of all business expenses at the end of the year. Two ways of documenting cash expenditures are to write reimbursable checks and keep detailed petty cash records.
Track accounts receivable and payable
Receivables and payables are the heart of small business finance. They are what customers owe you and what you owe others respectively. It is important to record details of both. Note how much is owed, invoice dates, invoice numbers, terms of the agreement, dates, and amounts paid or due, and balance. More importantly, always keep this information current.
In some cases, you may find that slow paying customers are negatively impacting your monthly cash flow. If this becomes a problem for your business, you have a number of options including applying for a traditional bank loan or line of credit or securing private funding. Invoice factoring is an increasingly popular option. Invoice factoring, also known as accounts receivable factoring, provides your business with a fast cash infusion with no invasive approval process, no long-term commitment, and no limits on how you use the funds.
Understand employee/payroll responsibilities
If you hire even one employee, you must fulfill your duty as an employer by filing the required forms and contributing payroll taxes. Every state has its own tax guidelines so you should see a tax expert to find out what your specific obligations are. Two forms that you’re likely to be asked to maintain for every employee, regardless of the state in which you do business, are the W-4 and I-9.
Maintain accurate records of all inventory
The final small business finance basic has to do with inventory. When tracking inventory, be sure to keep accurate records of purchase dates, purchase prices, stock numbers, sale dates, and sale prices. These records will help you better predict future trends because you’ll have past data at your disposal. You just need to analyze that data to uncover what the future might look like. Accurate inventory records will also help you keep inventory holding to a minimum.
Do you have thoughts or questions about small business finance? Post a comment below to share them with us.
Call us today at 800-297-6652 to learn how accounts receivable factoring improves small business cash flow. In the DFW area, call 972-404-4726.