Every organization is always interested in one central thing – managing financial transactions. Running a business requires making a lot of financial decisions. Here are 5 best practices that can help you to manage your startup finance today and always:
#1 Manage Your Expenses
You should learn timeless principles of managing your expenses; read financial statements (this will tell you about your money, income and expenditure). If your expenses are higher than your profit, then your startup will sooner or later collapse. Maintaining financial stability requires knowing these four essential details namely:
- Income Statement
- Cash flow statement
- Statement of shareholders’ equity, and
- Balance sheet
The income statement reflects the revenue your organization makes within a specified period of time, cash flow statement analyzes your financial in/outflow, investments and operating activities, statement of shareholders’ equity represents the funds your organization gets through preferred and common shares, while balance sheet reflects shareholders’ equity, liabilities and company’s assets.
#2 Maintain Financial Stability
As a business owner, you should keep your personal and corporate accounts separately; there ought to be a wall of separation between the two so that you can save money for yourself. Also, it will protect you from liability in cases of legal or corporate debts.
Define your role in the business, and pay yourself what someone in that role earns. Create a good financial plan for yourself. You may not know how to do this, that is why you will need to talk to a professional accountant, auditor or economist. Many entrepreneurs do not do this, and that is why their businesses always go broke unexpectedly. Maintaining financial stability will protect you from liability and severe tax burden, as well as generate lucrative business leads.
#3 Monitor & Measure Performance
As an entrepreneur, you need to keep a track record of how your money is being spent. Your accounting department should have the capacity to record every financial transaction that occurs in your startup. Have a detailed record of your past financial statements. This action will surely protect your future cash flows, expenses, and revenue.
Common financial ratios will also help you to know whether your business is underperforming or performing at an optimal level. Monitoring figures will help in minimizing wastes and maximizing efficiencies. Some financial experts believe this is the best way to monitor your cash flow, profitability, and non-financial factors like customer satisfaction and staff turnover.
#4 Use A Cloud Accounting System
Take huge advantage of cloud accounting software; it will help your business to work faster and smarter. When you work in the cloud, it will enhance your collaboration among team members, save lots of time and money and give you a comprehensive overview of your financial transactions.
With a cloud accounting system, you will have a detailed view of your financial transactions on time. It’s multi-user access software, which will give you the privilege of collaborating with other team members, and advisors anywhere in the world.
Updates and back-ups would be automatic, and you won’t have to be paying for system administration costs, maintenance, version upgrades and server failures because all these are perfectly managed by the cloud accounting service provider.
Many entrepreneurs are happy with this software due to its flexibility; if you are using cloud accounting system, you can run your startup virtually from anywhere in the world. You will have an update of what is happening to your business irrespective where you are. In fact, with cloud accounting system, possibilities are endless.
#5 Understand & Plan Tax Payment
You cannot effectively run your business if you are unable to understand and plan your tax payment. Some companies don’t like paying tax as and when due, while credible business people takes it as a fact of life to pay whatever their auditors or accountants tell them to pay to the government.
Every organization must be doing tax planning – the aim is to create efficiencies, save money and reduce business’ tax liabilities. Tax planning takes a comprehensive look at the expenditures, purchases plus timing of revenues.
To create a formidable tax analysis, you need to master the followings:
- Your organization must have a credible bookkeeping system
- Establish a good relationship with a certified and reputable accountant, who will help you with filing and effectively structuring your taxes.
- While making transactions for your business, always make use of your company’s credit card. Don’t mix up your personal and corporate transactions, so that you can be able to identify your company’s income and expenses, and
- Set up a retirement option – it’s tax deductible and can help in reducing your organization’s tax burden.
Remember to take advantage of the tips in this article to stay on top of your startup. If you are able to do this, then you will see how exciting it could be to run your own startup – you will handle your financial transactions in a lucrative manner. Give your business a bright future, and don’t allow it to suffer due to poor financial management!