Business owners wear a lot of hats. While some small business owners might be used to managing their own finances, handling business expenses is an entirely new challenge. Not everyone has a business degree and experience managing complicated accounts. If that’s the case, you can be left feeling overwhelmed even with the smaller parts of running your own company.
While much of learning to run a business is about trial and error, there are some tips that can help you navigate the early stages of growing your revenue on your own. Depending on the goals of your business, it might be a smart idea to bring in accounting software or even to outsource your bookkeeping. Keep reading for an introduction to your small business’s finances.
If you haven’t taken an accounting class in a few years (or ever), it’s normal to feel a bit confused by the terms and buzzwords. Without understanding these words, you’ll be stuck feeling like you’re speaking another language. Familiarize yourself with these basic terms below to gain confidence in your own financial skills.
This is also known as total revenue, and it’s essentially the sum of all the money you receive from customers. This number is calculated prior to deducting any business expenses.
Your expenses are everything you subtract from your revenue that costs your business money. Things like materials, taxes, payroll, and rent are all expenses that won’t make it into your pocket.
This is also known as the bottom line, and it’s the money left after you deduct your expenses from your revenue. Your goal is to have this be a positive number which means you have a profitable business.
Break Even Point
Many businesses don’t start making a profit for a few months or even years. This is normal, and many companies start by operating at a loss. The break even point is when your total revenues equal your expenses. This means you’re turning to profit, and you’ll want to keep track of this milestone.
Keeping Track of Finances
Now that you know the metrics you’ll need to measure, it’s time to get organized. Being organized is key to staying on top of your business expenses and revenue. If you make mistakes, you might run into trouble when it comes to taxes, payroll, and making payments on time.
This is an overview of your financial status. It will include everything from liabilities to assets, and it will calculate the net worth of your business over time.
Cash Flow Statement
Your business needs to have enough cash to cover expenses like payroll, rent, and utilities. A cash flow statement makes sure all of this cash is accounted for. You’ll need to reflect things like invoices and business activity. You can find free invoice templates to stay organized. (check those here: https://www.freshbooks.com/invoice-templates/excel)
It’s not enough to know your numbers. You should also be comfortable making smart decisions about your business, and that means thinking towards the future. A revenue analysis, also known as a revenue forecast, is an estimated prediction for the upcoming year about just how much profit your company will make. This will help you decide if you can afford that new employee or payment system.
Utilize an Expert
When it comes to things like business taxes and payroll management, it’s sometimes better to get extra help from an expert. While accounting software can be useful for taking the guesswork out of bookkeeping, it’s not always the best choice. If you have more than a few employees, it’s always a good idea to use a bookkeeper.
Most small businesses can’t afford a full-time bookkeeper. Luckily, it’s easier than ever to outsource to a qualified accountant who specializes in small businesses. This is also a great resource for learning more about investment opportunities, taxes, and business forecasting.
This guide shares the most crucial things you need to know about managing your small business finances. While we can’t all be expert bookkeepers, we can make smart decisions about the future of our businesses. Whether you keep a balance sheet on your own or with the help of an accountant, it’s important to take your tracking seriously.