Some who have started their business to pursue a passion such as photography, writing or graphic design without giving a lot of thought to the business or money side of things. Managing your money and understanding the financial side of your business is a skill that can be learned. Here are 3 financial practices of savvy business owners:
1. They track their money
Financially savvy business owners know how much they are earning; they know where their sales have comes from and what it has cost them to make it. They track their earnings and expenses on a daily, weekly and monthly basis.
I am often surprised by how many small business owners put their financial record keeping to the side as something you do at the end of the year for the tax man. Of course it is important to have clear financial records at tax time but it is also imperative throughout the year to understand how much money you are making. This allows you to focus your attention on what is working in your business and use this information to make more money. You can use a spreadsheet, an app or bookkeeping software to track your income and expenses. Whatever is easiest for you to record and measure the money coming in and going out of your business.
2. They keep their business finances separate from their personal finances
This is critical. Even if you are operating as a sole trader, meaning for tax purposes you and your business are the same entity, it is vital for your own financial understanding to keep your business and your personal finances separate.
Get a separate low fee bank account and credit card for your business and put all your business income and expenses through these accounts. When your business income and expenses are going through your personal bank account it makes the process of reconciling your finances much messier and more time consuming. You also need to remember whether certain expenses were personal or business for example whether taxi charges were related to a business meeting or from coming home from a party. Having separate accounts will make your record keeping much simpler and you will be much less likely to miss things. It will also allow you to see at a glance how your business cash flow is going.
3. They have a system for organising and storing their financial records
As a business owner you need a system for organising your financial records (and I am not talking about a shoe box under your bed!) It doesn’t really matter when you are starting out what system you use but it is important you have a system and that you can locate the records you need when you need them. So whether it’s a lever arch folder with a plastic sleeve for each month or an electronic folder on your computer with receipts saved by supplier name, choose a system that will be easy for you and one you can commit to.
With a little discipline these habits can become yours and you will be well on your way to understanding and managing your business finances. I challenge you to choose one of the above habits and commit to implementing it in your business this week.