As a leading financial advisory firm in London, we work with many entrepreneurs and small business owners. One of the biggest pain points they face is keeping finances in order as the company grows. From dealing with cash flow fluctuations to separating personal and business accounts, there’s a lot for small business owners to stay on top of. Here are some tips from our expert advisors on how to effectively manage the financial side of your small business:
Implement Robust Accounting Practices Early
It’s critical to have a reliable accounting system and processes in place from day one. Invest in reputable accounting software, open a dedicated business bank account and credit card, and stay organized by carefully documenting every transaction. Having accurate, up-to-date financial records provides crucial visibility into your revenue, costs, profit margin, tax liabilities and more.
Prioritize Cash Flow Management
The old saying is true – revenue is vanity, profit is sanity, but cash is reality. Profitable businesses can still go under due to cash flow shortages. Pay keen attention to your cash flow by doing projections, invoicing promptly, facilitating easy payment from customers, and lining up financing options like an overdraft facility or business loan for times when you need a cushion.
Separate Business and Personal Finances
Using the same accounts for both business and personal expenses is a recipe for bookkeeping nightmares and potential legal issues down the road. Completely separate your business and personal finances from the start, including different bank accounts, credit cards, record keeping and more. This ensures you can clearly track profitability, expenses, and accountability.
Hold Some Cash Reserves
While it may be tempting to plow all your profit back into business growth, it’s wise to maintain a cash reserve fund to fall back on during leaner periods. Aim for at least 3-6 months’ worth of operating expenses. This not only provides resilience against unexpected emergencies, but allows you to cover slower periods and invest in growth opportunities when they arise.
Plan Ahead for Taxes
Taxes are one of the largest expenses for most small businesses, so planning ahead is essential. Work closely with your accountant to understand your income tax, VAT, payroll tax, and other obligations each quarter and year. Making regular tax provisions and payments avoids major cash crunches when taxes are due.
Get Professional Support for Major Decisions
For major financial decisions relating to investments, financing, business transactions, retirement planning, and so forth, make sure to consult qualified professional advisors including your accountant, bookkeeper, financial advisor, and attorney. Their specialized expertise helps you evaluate deals thoroughly and implement optimal strategies for your business’s long-term success.
While juggling the myriad financial aspects of running a small business isn’t easy, proactively following best practices pays off immensely. Stay on top of your finances, and you’ll be well-positioned to grow sustainably in the years ahead.