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Many business owners struggle with keeping their small business finances organized. As a business owner, you have to wear multiple hats, and few entrepreneurs are trained in sales, marketing, product development, operations, human resources, technology, and finance! However, you’re still responsible for paying your taxes and making sure your business can meet all of its financial obligations.
Don’t let small business finances stress you out. Instead, follow these tips to stay organized, and the burden of wearing the Chief Financial Officer hat will become much more manageable.
1. Keep Your Personal and Business Finances Separate
By far, the most important thing you should do as a business owner is ensure all of your personal and business finances are completely separate. If your business is a sole proprietorship, it can be particularly easy to co-mingle your personal and business finances, but don’t do it! That means you need separate bank accounts and credit cards. If you purchase something for the business with your personal credit card or cash, document it with an expense report, and pay yourself back using money from the business account.
2. Track Everything
Keep every receipt and invoice, and track where all of your income comes from and your expenses go toward. A business without a positive cash flow isn’t sustainable, so it’s critical that you have a complete understanding of your business’ financial position at any moment in time. Create a budget and track all of your activities against that budget. Keeping a paper trail is especially useful if you’re ever audited by the IRS.
3. Record as You Go
Don’t wait until the end of the year to track and document all of your business’ finances. It’s easy to skip your financial management tasks, but when tax time comes, catching up takes far more of your time than tracking on an ongoing basis throughout the year would have. Trying to find receipts and invoices and remember what everything was for is challenging when months and months have passed.
4. Automate Processes
There are many accounting software tools available that can help you organize your finances, provide invoice templates, and so much more. You can quickly design your invoices, number them for tracking, send them to your clients, and even receive payment. These tools make it easy for you to track your finances and stay organized while saving lots of time!
5. Create a System to Identify Income and Expenses
What do you do with an invoice or receipt when you get it? Do you shove it in a folder and forget about it? Do you stuff it in your wallet or leave it on your desk where it’s likely to get lost? To keep your small business finances organized, you need a system to immediately identify income and expenses in real time, so you can record them when you have time (preferably on a weekly or monthly basis).
To do this, create a chart of accounts and immediately mark all invoices and receipts when you receive them with the account number and description. In time, you’ll memorize all of the account codes in your chart of accounts, so the process will be quick and easy (until then, paste a copy by your computer). Drop the invoice or receipt into a special folder for recording later. At the end of the year, you’ll have all of your financial paperwork in chronological order and every item will be marked on the hard copy and recorded in your accounting books.
Your Next Steps
Now that you know these five ways to keep your small business finances organized, it’s time to get started. Separate your finances, create your chart of accounts, develop your invoices, record as you go, and track everything. If you do these five things, you’ll feel a lot less stress over your financial management tasks.
This article was super helpful in providing easy and clear tips that will allow business owners to success financially. The article touches on the stress that entrepreneurs can face when having to deal with marketing, sales, and product development all at once. They then went on to provide simple tips that can be widely understood and easily replicated in any business. While I wish they provided more specific examples following each tip, the general nature of the article allows it to be used across businesses.
Katherine Fox, May 2017
Freeman School of Business, Tulane University