Eight Ways to get Your Businesses Finances on Track
Finances are a major part of running a successful business. Here are eight tips to help you get your business finances on track, and keep them on track:
1.) Keep your business and personal expenses separate. Start by opening up a business checking account, and then open any savings accounts solely for your business finances that will help you organize funds and plan for taxes. For instance, set up a savings account and stash away a percentage of each payment as your self-employed tax withholding.
2.) Ensure that you are properly tracking and remitting your sales tax. Make sure you are signed up with the proper authorities and are filing and paying on a timely basis.
3.) Calculate your gross margins. Do you know if you are making money on your products? Here are two definitions to know:
a. Cost of Goods Sold (COGS): These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.
b. Gross Margin: This number represents the total sales revenue that is kept after the business incurs all direct costs to produce the product or service.
4.) Build financial forecasts. We set personal goals and we set business goals, but why are we not setting goals for our finances? Work with your accountant to set financial goals for the month, quarter, and year.
5.) Look at your cash flow patterns. Every winter you feel like you don’t have as much cash but you don’t know what to do about it. Here is the answer! Work with your accountant to know and understand your cash patterns so you can start to plan for the seasonality of your business.
6.) Know the difference between a W2 employee and a 1099. It’s so exciting when we can start hiring staff to help in our businesses, but let’s not forget that we need to evaluate what they are doing for the business, how they should be paid, and the tax impact. Work with your accountant to ensure you have your contractors and employees classified correctly, and that you are keeping track of the payments and taxes paid.
7.) Close out your books. Every month, or at least every quarter, every small business should close out their books and evaluate their financial progress. Work with your accountant to make sure all of your transactions are classified correctly, your accounts are reconciled, and you have evaluated your financial progress.
8.) Compare your progress to your financial forecast. You worked so hard putting together your goals and forecasts, so make sure you are consistently evaluating the actual progress of your business and compare them to the goals you set. Don’t be discouraged by this exercise: Learn and repeat!