Money is of critical concern for every business, even if it has started a day before. Hence, money management is an important task that a small business owner has to take into consideration.
In this blog post, we will acquaint you with the financial basics, steps to be taken by a small business owner, and the different types of bookkeeping software that can be utilized easily. We know that during the initial days, money management does not seem to be necessary and is often ignored by business owners. But if you take the requisite steps, you can achieve your revenue and business goals quickly and effectively.
1. Educate yourself with the financial terms
Yes, financial education is a must for every business owner out there, no matter how excellent he is at marketing and tapping clients. If you do not know about assets and liabilities, it is high time to learn these terms. You do not need to attend college or undergo a course for that. Just talk to your friends who are into finance, read books, and explore the internet for the same. You will be almost there. To help you out, we have a few financial terms for your understanding.
- Assets – This refers to the capital invested in the business, the plant and machinery, the land or property and other aspects that bring income to the venture.
- Liabilities – These are the items that your business owns to others. It could be borrowing from relatives or friends and loans from financial entities.
- BalanceSheet – The listing of all assets and liabilities happens in a balance sheet. It is the financial review of the business for a particular year.
- Cashflow statement – The cash entering and leaving the organization is recorded in this statement. The difference between a balance sheet and a cash flow statement is that the former records assets and liabilities while the latter takes into account only cash.
- Equity – The shareholders’ ownership or the amount you own in the company is called equity.
- Profit and Loss Statement – It records all revenues and expenditures of the business. The difference between these two terms is profit or loss.
- Other terms include accounts receivable and accounts payable, gross profit, net profit, and others.
2. First things first
We know how overwhelming it is during the first days of your business. You will be occupied with the registration, team-building, sales-making, and other tasks, and handling business finance could be a hassle for you. But our suggestion is to be alert about money during the first days of your business itself. If you mix it up, you will develop a lousy habit and end up spending your income or not knowing that you are in a state of loss.
Separating business and personal money is an important consideration suggested by all business professionals. For example, you could be borrowing money from your friend to buy computers for your new business, but if you do not mention it in the financial records, you will never know that the business has a liability. Similarly, if your business income is credited to your personal account, you will spend it on your family and household expenses and not for business growth.
Hence, never get entangled between personal and business life. Always separate the finances and record them on time. The more you avoid or procrastinate, the more you will get confused about the net profit or loss at the end of the year. Missing out on expenses or incomes can be a huge concern.
3. Figure out the bookkeeping software for your business
The two main constraints determining your choice for the bookkeeping software are your budget and the software efficiency. Even if someone might recommend you to opt for old school and take up a pen and paper to record your revenues, we will always suggest software. And the best thing is that bookkeeping software is pretty effective and affordable these days.
Following are a few leading examples.
- QuickBooks – Yeah, you must have known this for a long time now. It is because of the efficiency and the easy-to-use features they have. Highly recommended by experts and users, this software requires you to pay a certain amount from your pocket but is worth it.
- FreshBooks – It is well-appreciated by users around the world and hence, is popular amongst small business owners. It is affordable, and you don’t have to pour in your funds to use it.
- Wave – This is another simple-to-use and free software to record expenses and incomes. The reason why experts do not recommend it is that it does not support advanced features and has limited capabilities. But if you don’t want to spend a dime on bookkeeping and keep it as simple as possible, this is the best one for you.
Another free bookkeeping method is to use spreadsheets. Just create two components for expenses and incomes, and you are good to go!
4. Final steps to be taken
You are ready with the money mindset, first steps, and your bookkeeping software as well. Here are certain essential steps you need to take.
- Set up a business bank account as soon as you seek your registration number. In this way, you will not procrastinate differentiating your personal and business finances. You can either create an account through an online portal or go local; it is up to you.
- During the first days, it is okay to be a little nervous and occupied. But this doesn’t mean you can seek an excuse not to maintain records. So, go simple and create a spreadsheet, and be organized.
In a nutshell, you have to take care of four aspects while maintaining accounts for your small business – financial education, first steps, choosing an appropriate software, and the final steps. It is okay to delay, but you have to be vigilant all the time. A financial excuse is not a good thing as it results in mindless blunders. We know you will keep these things in mind and plan accordingly. All the best!