Starting a small business is an exciting, yet daunting process. You’ve decided to venture out on your own and may not be entirely versed on how to manage business expenses. And that’s okay. Tackling all that comes with a small business takes a lot of work, so it’s essential to get organized right away. From time management to money management and everything in between, your small business will require lots of energy. Knowing how to manage your small business finances properly will allow you some peace of mind and offer a game plan for the future. Here are some tips on how to start managing small business finances.
- Establish Expenses
Financial planning is key to success. According to the Small Business Association, roughly 63% of small businesses have some form of debt. It’s important to make sure that your small business has the proper resources and budget to sustain itself now and in the future, so you can better avoid falling into debt.
To ensure that your small business starts out on the right foot financially, set a budget and stick to it. To start your budget, establish how much money you need for start-up costs, operating expenses, and other financial considerations. For example, if you are starting an Etsy business, you will need to calculate the cost of supplies (such as fabric, paint, etc.) and how much you plan to charge for each item. If you are a local Uber driver, do the math on how much gas you will use while on the job and any added mileage, wear and tear, and auto detailing on your vehicle.
- Separate Business and Personal Finances
Whether your small business is a full-time career or an “on-the-side” gig, we encourage separating business and personal finances. According to the 2017 Kabbage survey, about half (47%) of small business owners use personal savings to pay for business expenses. To avoid blurring the line between personal and professional equity, open a business account that is entirely separate from your personal savings. Even if the account remains somewhat stagnant as you start out, two active accounts help reinforce an independent budget and separate financing.
We understand that as you are getting started, it can be difficult to sustain your small business without dipping into personal funds, particularly while you may not have yet turned a profit. Small businesses and the success of small business can feel so personal, but for your financial health, we recommend reserving personal savings for personal expenses. This way, once your business does turn a profit, your business income and expenses can stand alone.
- Track Every Penny
As most small business owners know, there are lots of moving pieces keeping a business afloat, and money can get tight. Take steps to methodically track every business expense to avoid going over-budget, and to ensure that you know exactly where your money is being spent. Evaluate your budget on a monthly basis and identify what’s working, any overspending, and how you can improve. At first, you may spend more than you earn. But, if negative cash-flow is consistent, consider seeking financial help.
- Seek a Mentor/Financial Coach
Financial institutions are great resources to help small business owners. The NFCC’s Small Business Owner counseling initiative is in place to help small business owners take charge of their finances. Certified credit counselors will help you assess your financial situation and equip you with the knowledge to make the best financial decisions for yourself and your business. Don’t be afraid to ask for the help you need to thrive.
Author Bio: Rachel Kampersal is the Marketing Communication & Programs Associate for American Consumer Credit Counseling, and a frequent contributor to TalkingCents Blog.