Managing finances is the most crucial skill a company owner should have. This is because finances are one of the most important determinants of your start-up’s success. Poor financial management would mean you will be behind in filing your business taxes and paying your credit.
Therefore, you need to record all spending and manage your cash flow to manage your finances effectively. You must also have basic accounting skills and digitize your operations to track finances effectively. Read on to learn more about how to maintain your company finances in the initial phase.
- Managing And Tracking Cashflow
The first step to maintaining your company finances is by tracking and managing the cash flow. While it may seem easy, managing cash flow may be hard for company owners, especially if they do not know finance.
You can take some steps to ensure that you are up to date with your cash flow. First, it is crucial to create a cash flow statement and forecast. This helps you keep a close eye on money movement in your company. You can find cash flow statement templates online or get accounting software.
Secondly, you should think about the payment terms whenever a sale is made. Late payments negatively impact your business, while instant payment will help your business run smoothly. However, if you sell products or services to other businesses, you might give credit since credit attracts more clients.
Hence, the best way to deal with this problem is to offer discounts on instant payments and charge interest on late payments. Ensuring company formation is crucial as it separates business assets from personal assets.
- Separate Business and Personal Finances
When your company is at the initial stage, using your finances to supplement your business or even to pay your business credit might be tempting. While this may be the simplest way to keep your company debt free. However, this is not sustainable as you will start using business finances to pay for your personal needs.
You can separate your business finances from your personal finances by setting up a business bank account to keep your business profits. Getting a business credit card is another way that can help prevent you from using your personal finances in your business.
A business credit card will also make it easier to track your tax deductions and monitor business expenses. When choosing a business credit card, consider the annual percentage rate, loyalty points and introductory interest rates.
- Manage Your Company’s Debt
Taking a loan when starting a company is considered paramount as it aids in financing the company’s operations. The company operations may include the purchase of equipment and services and also the acquisition of inventory.
Consequently, it is crucial that the company’s debt is used well and not used for personal purposes. So, to effectively manage debt, you should stay on top of your financial situation by having good debt management software and learning good accounting practices.
You should also prioritize your debt payment according to importance so that you may not attract additional interest from your lenders. Paying your debt earlier or on time will earn the trust of lenders. This further makes it easier for you to get a business loan. Timely payment of business debt also increases your credit score.
- Pay Yourself a Salary
As a start-up founder, you may find yourself forgoing your paycheck so that you can put more money into your growing business. However, this should not be the case as you need money to pay your bills and savings.
Paying yourself first also offers financial clarity on your company’s cash flow. If paying yourself stresses the company, you should lower the business expenses or look for extra money to support your business. However, if the company’s operations run smoothly after paying yourself, then it means that it is financially stable.
You can pay yourself by salary or owner draw in various ways. Paying by salary means paying yourself a reasonable amount at the end of each month. On the other hand, paying by owner’s draw means taking part of the company’s profit to pay yourself. When determining how much to pay yourself, you should consider the company’s net income, debt, and tax savings.
- Track And Monitor Spending
Every company incurs expenses at some point during operations. Therefore, tracking and monitoring all spending is important, so you don’t experience a negative cash flow. Negative cash flow is when the company records more expenses than income.
The first tip is to track and monitor spending by digitizing all paper processes. This will help track all transactions as opposed to using cash. Secondly, you can construct purchasing processes such as using invoices and having basic bookkeeping processes. Accounts payable and payroll will also help you monitor your spending.
Tracking your spending also helps you stay compliant and transparent with shareholders and tax authorities. Staying current with your taxes will help avoid more expenses caused by fines.
- Establish Financial Goals
Financial goals are the epitome of every company’s success. Therefore, you must establish financial goals when the company is in its initial stages. Financial goals give you a roadmap and help you stay focused on the company’s vision.
Writing your financial goals can also help you attract investors and shareholders to your company, therefore raising capital. People are more likely to invest in and trust your company if you have well-laid financial goals.
Therefore, you must establish financial goals as a start-up, as it will help measure your growth. These goals also help provide motivation whenever you feel stuck, as they help keep you focused in the long term.
Starting a company may be demanding as you will have a lot of financial constraints. However, you will likely get funding if you apply for a loan from relatives and friends, the government, or credit card companies. Therefore, you must have financial management skills to help manage your business money.
Easy tips such as setting up a business account to separate your business finances from your personal finances can help your start-up grow. Making payments on a timely basis will also help improve your credit score and earn the trust of lenders. Writing your financial goals also provides a roadmap to measure your company’s growth.