6 tips for starting your small business finances on the right track
Give your business the financial fresh start with these tips to stay in control of your small business cashflow.
Having a small business can be rewarding – you call the shots, you can create a flexible schedule for yourself, and more often than not, you’re doing something you’re passionate about. But it also comes with its fair share of challenges. According to Business Development Canada, although business owners identify financial management as their biggest worry, most struggle with the bookkeeping necessary to gain control over their finances footnote 1 .
Here’s how you can start your business on the right track and take effective control of your money.
1. Create a budget
Budgets aren’t fun but they’re crucial for managing your cash flow. They’re basically a list of your projected monthly or yearly revenue and expenses. Anticipating your business’s expenses helps you avoid surprises, plan for the future, and identify and address areas of concern. It’s important to be as accurate as you can with your projected revenue. Compare your budget to your actual earnings and costs to get a true picture of your small business’s finances.
2. Set up your business’s books
Keeping a record of your income and expenses is critical. You’ll be able to make better financial decisions about taxes, drawing an income, financing and more. There are so many free or practically free accounting programs that allow you to create the reports you need to help you better manage your cash flow and finances – including FreshBooks® and QuickBooks® – so you may as well use them!
As part of your bookkeeping efforts, open a separate chequing account for your small business and reconcile it monthly. You should also create a reliable sales reporting system with a sales book, invoices or a point-of-sale system.
3. Project your cash flow.
Cash flow issues, such as delinquent receivables or unexpected tax-related expenses, can be a royal pain and cause more businesses to fail than profit. A cash flow projection that includes your start-up costs, financing and sales forecasts will help you avoid these issues and help your business thrive. Follow up your projection with a cash flow statement, which is an actual record of the money that enters and leaves your bank account every month.
4. Create a profit and loss statement
Be sure to track your profitability on a monthly basis. Prepare and review a profit and loss statement monthly and on a fiscal year-to-date basis. It tells you how well you’re managing your business and includes sales, cost of goods sold, gross profit, overhead and net profit. Take advantage of accounting software such as QuickBooks or FreshBooks that automatically generates a profit and loss statement for any time period according to the parameters you enter.
5. Prepare for taxes
Set up tax accounts when you establish your business and stay on top of them so that you’re not scrambling during tax season Depending on your revenue, you may need to collect GST/HST. Find out if import taxes apply to you. If you’re running a sole proprietorship, investigate withholding taxes and whether they apply to your business income. This information is available online through the Government of Canada.
6. Hire a professional
Not a numbers person? Hire a bookkeeper or accountant to set up and/or maintain your financial records. They can crunch your numbers, provide advice and help you avoid costly financial errors.
Using available tools to track and forecast your sales and expenditures, sourcing information online, and hiring professional assistance can help ensure your small business remains fiscally healthy.
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