Manage Your Small Business Finances More Efficiently
by Abigail Tracy, Inc. Magazine
For most small business owners, the luxury of an accounting department is just that — a luxury. While keeping track of your finances is a must, there is no one right way to do it. This means that you have freedom in how you choose to keep track of your finances — just as long as you are keeping track. Some methods are more efficient than others, but the most important thing to recognize is that you have options.
First off, the most important thing to do upfront is to get organized so you aren’t scrambling to throw something together when April 15 comes around.
Here are three universal steps to follow for managing your business finances:
1. Keep receipts or other acceptable records of every payment to and every expenditure from your business
2. Summarize your income and expenditure records on some periodic basis (generally daily, weekly or monthly)
3. Use your summaries to create financial reports that will tell you specific information about your business, such as how much monthly profit you're making or how much your business is worth at a specific point in time
Let’s break down how you can save time for each of these steps.
Keep receipts or other acceptable records of every payment to and every expenditure from your business
This seems simple, but you will have a lot of expenses to track. Try these suggestions from Denise Winston, founder of Money Start Here:
“To keep track of those expenses, Winston recommends carrying a receipt envelope with you in your purse, car, briefcase, backpack or wherever works best for you…. As the envelope fills up, you should then transfer the receipts to your accounting files or to the many software or online programs, such as Shoeboxed.com, that are now available to help you track your expenses. For a more high-tech solution, consider downloading Capturengo, an app for the iPhone [and BlackBerry smartphone] that allows you to create IRS-approved digital receipts using your phone's camera.”
Summarize your income and expenditure records on some periodic basis
Once you have all your expenses in order, it will be easier to put together a picture of your company’s finances — accounting software can help with this. Here are two ways:
The Basics: Some software walks a user through the setup process, teaching tasks such as creating invoices and paying workers. It also allows users to keep track of billable time from calendar appointments, emails and tasks. Some software features allow service companies, like accounting firms, to view unbilled time and expenses from one screen and create invoices with a single click of the mouse, says Inc. contributor Jason Del Ray, in the article “Point and Click Your Way to an Organized Balance Sheet.”
Consider Mint.com: “I've used their beautiful interface to display the entire financial picture of BradsDeals.com in one place: what we have, what we owe and how is our money being spent. The budgeting, bill reminders and email alerts are as handy for small businesses as they are for consumers. Once properly set up, Mint runs on auto-pilot, aggregating and categorizing all of your company's financial transactions from all of your accounts, allowing [you] to swoop in briefly and get a quick but complete view of [your] finances. Mint can also send a weekly summary via email. Setup is remarkably headache-free and the automation is a huge time-saver,” says Brad Wilson, founder of BradsDeals.com.
Use your summaries to create financial reports that will tell you specific information about your business
This is the most important step in your bookkeeping process — why do all that work for nothing? Once you compile all the information about your business, you need to understand what it all means. (You can get a basic understanding here.) The bottom line is this: organizing your finances in advance and using all the tools available to you will make the accounting process smoother and faster and reduce the chances for error. More importantly, hire a CPA who specializes in small businesses. There is no substitute for real expertise — ever.
Abigail Tracy is a staff reporter for Inc. magazine and Inc.com. Follow her @abigailtracy.