The two most important elements of budget management are:
- Separating your personal budget from your business budget. Keeping your personal and business finances separate can make recordkeeping easier and may help protect your personal assets. You should also consider keeping a separate checking account, credit card and budget for your business. Separating these finances will make tax time simpler, help you create business credit history as well as help you protect your personal finances and better understand your business’s financial position.
- Knowing the basics of business accounting, and, if possible given your financial situation, working with a good financial consultant or accountant. Increasing your financial knowledge and relying on the help of an expert can help you avoid mistakes and even detect fraud.
Inside tips on tracking your budget
- Monitor progress toward creating an emergency fund. Companies face risks related to the economy slowing down, slow sales periods or an unplanned event. Creating an emergency fund will help protect you from these risks and prepare you to weather difficult periods.
- Review your income and expenses from time to time to ensure you aren’t missing any hidden costs, or living beyond your means.
- Consider hiring a certified accountant to help manage your finances if your budget allows for it. Note that even with expert support, you’ll need to take responsibility for monitoring and tracking your company’s finances closely.
- Carefully track the flow of money coming in and going out to make sure you can pay expenses if you have to wait for payments to arrive. Even companies with strong sales may face difficulties, or even be forced to close, because they can’t afford their bills or salaries while waiting on customer payments.
- Consider using revolving credit lines (available credit) or credit cards to smooth your cash flow and pay bills while waiting on customer payments. Just remember to pay your credit card bills as soon as possible to avoid paying interest and stay well within your credit limit, or the maximum amount that you can spend with your credit card.
Pay on time, every time
Making late payments on bank loans or credit cards usually results in late fees, which can really rack up. More than this, it can affect your credit limit, your ability to get credit lines and your credibility in the eyes of other companies. Poor financial management can harm or even bankrupt a business. Just like with personal finances, it’s important to pay vendors, bills and other debts on time in order to protect your business, your credit and your reputation.
For more information on budgeting, explore the Budgeting page.
Similar to budgeting, accounting is a process for tracking business finances. Accounting deals with recording, summarizing, analyzing and reporting your business’s financial transactions, whereas budgeting can help you project expenditures on a monthly or annual basis. Of all the tasks and requirements that come with owning a business, staying on top of your day-to-day accounting should be on the top of your to-do list. Here are a few tasks to tackle as you get your business up and running:
Open a bank account
Having a separate business bank account makes recordkeeping easier and helps simplify paperwork when tax time comes around. If you formed an LLC or corporation, you’re legally required to have a separate bank account for your business. To open a business bank account, you will need a business name and an employer identification number (EIN), and you’ll need to register with your state.
Start tracking expenses
For budgeting as well as accounting purposes, tracking your expenses is an important part of keeping records, monitoring your business’s growth and checking your financial statements for errors. The first step is to develop a system for collecting and organizing receipts in one secure place.
Develop a bookkeeping system
Bookkeeping is the day-to-day process of recording transactions, categorizing them and checking them against bank statements. Most business owners choose to use a spreadsheet software, or hire a bookkeeper for this task.
Businesses often use one of two accounting methods: accrual or cash. With the accrual method, transactions are recorded on the books immediately after a sale or purchase. With cash basis accounting, transactions are recorded once you receive payment, or a payment leaves your account.
For example, imagine you make a sale in January and receive the $200 payment in February. With the accrual method, you would record the transaction on January’s books. With the cash method, you would record the payment on February’s books. Here are some pros and cons of each method:
- Creates immediate snapshot
- Can help you plan for the future
- Shows cash flow clearly
- Easier to understand
- More complex to manage
- Figures may be misunderstood
- Hard to predict
- Less long-term clarity
Get accounting support
If you aren’t comfortable managing your own records, you might want to get professional help with your accounting by hiring a certified public accountant (CPA) or bookkeeper, or by using an online service.
Although a CPA will typically cost more than an online service, they can also offer more tailored service for your business needs. A bookkeeper can provide basic day-to-day functions at a lower cost, but won’t possess the formal accounting education of a CPA.
If you do hire someone to help, they should have the ability to manage:
- Accounts receivable
- Accounts payable
- Available cash
- Bank reconciliation
Planning for success
When it comes to planning for the future of your business, writing down tasks and goals is key. This simple act can help you meet your business goals, grow your business effectively and ensure your actions are in line with where you want your business to go.
Daily planning tips:
- Prepare your daily to-do list
- List the tasks in order of importance
- As you complete each task, mark it as finished
- At the end of the day, review the completed activities and add uncompleted tasks to the next day's list
Create an organization chart
An organization chart offers an outline of your business’s structure and records each employee’s role and whom they report to. Having this in place will help you distribute tasks among your workers in a more balanced way. It’s great for your employees, too, giving them a clear sense of their roles and responsibilities within the company.
Communicate employees’ roles and tasks
To ensure a smooth workflow, make sure to clearly communicate your employees’ roles and tasks to them directly. They should understand the most important tasks to perform and when each action should be completed. If an employee is absent, help your other staff understand how they can pitch in to ensure each item is complete. Learning to assign tasks to others is one of the most important aspects of leading a team; this will allow you to devote your time to more important activities.