There are many different reasons why someone may decide to create their own business. According to a study
by Cox Business, the majority of business owners surveyed said they pursued entrepreneurship because they wanted to be their own boss and create something new. Less than 10% of survey participants said their motivation for starting their own business was money. Yet, a lack of funds is often the main reason businesses fail
. Without sufficient financial resources
it can be difficult to manage all aspects of a business.
So, how can small business owners maintain a strong balance sheet without losing sight of their primary reasons for starting
a business? Here are 6 tips for efficiently managing your business’s finances, so you can continue to focus on the aspects of your business that you’re most passionate about:
1. Use Accounting Software
such as “general ledger”, “reconciliation”, and “depreciation” make your eyes glaze over, accounting software can help you feel more comfortable and ensure that your accounting processes
follow best practices. Accounting software may take time to set up, but once it's operational, you will save time
on paying bills, issuing invoices, paying employees, and filing taxes.
For example, you will set up each of your vendors in the accounting platform. Then, each time you need to pay a vendor, all the necessary information will already be there. When you issue payments, the software will automatically debit your linked bank account
and mark the bill as paid. The accounting software
performs each calculation, reducing the chance of human error.
The process of issuing invoices and paying employees works in the same way. You enter the information once, and it's available for every subsequent invoice or paycheck. The accounting software will track when invoices are sent and payments are received, and the payments will be credited to your bank account as well.
2. Understand the Basics of a Balance Sheet
A balance sheet
shows the relationship between your business’s income and expenses. It helps determine profitability by listing the value of your assets and liabilities, plus any equity you have. Balance sheets are essential when looking at financing options
such as bank loans
or investment capital. As a business owner, you should understand how to interpret a balance sheet in order to use it as a quick way to determine the financial health
of your business.
Automating your balance sheet can easily be done with accounting software. Most accounting platforms can generate balance sheets for any accounting period within minutes. This capability is critical as lending institutions and investors will likely focus on your business’s financial statements before approving you for a business loan. Reviewing your balance sheet regularly will help you manage your business’s finances without taking up hours of your time.
3. Monitor Cash Flow
No matter how strong your balance sheet is, you need cash to pay your bills. Monitoring cash flow
means looking ahead to ensure there's sufficient revenue coming into your business to cover expenses. If you know a shortfall is likely, you can look for solutions before there is no money left to pay the bills. At a minimum, you should look at your business’s cashflow at least once a week. Sometimes, you may need to check it daily if you are running close to the edge of your financial resources.
4. Establish Business Credit
Just as you build credit through managing your personal finances, you should be doing the same for your business
. The process of establishing credit
for your business is very similar to how you would go about establishing credit for yourself. Consider using a business credit card
to pay for certain expenses while paying off the balance each month. Also keep in mind that you don’t necessarily have to wait until you need money to ask for it. Talk to lending institutions about possible business loans
even for small amounts to cover inventory or to pay for a specific expense. There are business lines of credit
options as well to help build up your business’s credit score. If you wait until you need the additional funding, you may not receive it in time to pay for your immediate expenses. Having financial resources to fall back on will help reduce stress, and prevent you from having to face unpaid bills and past-due invoices.
5. Hire a Bookkeeper
Take an honest assessment of your willingness to enter bills and issue invoices on a daily or weekly basis. If you aren't going to input data into the accounting software promptly, consider hiring a bookkeeper
. Monitoring cashflow, evaluating balance sheets, and looking for outside funding can't happen if your financial data is not current. It's easy to say, "I'll do it this weekend" - only to have the paperwork still waiting on your desk on Monday morning. A bookkeeper will be more comfortable with financial documents and terms and can keep everything more organized as well.
6. Find a Financial Partner
Developing a working relationship with a financial institution
not only helps when you need a loan but also provides an ongoing resource for operating your business. Small business banking advisors can recommend alternative funding
solutions, investment suggestions, or direct you to other small business resources. Just like funding, don't wait until it's too late to find the right banking partner. Having someone familiar with your business can only work to your advantage when going through the loan process
There’s no way to avoid keeping track of finances as a small business owner but finding ways to automate certain aspects of the process and learning how to stay ahead can alleviate some of the stress. If you’re a small business owner in Massachusetts or Rhode Island who’s looking for assistance or guidance regarding your business’s finances, don’t hesitate to reach out
to our dedicated Business Banking Team