how to manage small business finances

Many business owners feel intimidated by the financials when writing their business plan. However, it doesn’t require a business degree or advanced math skills to create accurate financial statements. Check out our other guides to learn how to set up your finances and create valuable budgets and forecasts. Financial statements can yield valuable insights into how well your small business is managing income and expenses.

Ways to Manage Cash Flow for Your Business

  1. Calculating the breakeven point can help you determine if your prices are too low or your costs are too high and evaluate a potential business expansion or new project.
  2. Inventory may require a big cash investment, and you can use the inventory turnover ratio to monitor inventory and cash collections.
  3. When submitting the invoice, it’s also worth asking if there’s any reason why the payment won’t be made on time, as most people will do everything they can to not go back on their word.

Determine your business’s current cash flow by subtracting your expenses from your income, noting when you receive and pay bills. By tracking your cash flow, you can avoid cash flow cash flow to creditors calculator issues, stay on top of payments, and avoid penalties for missed payments. Free tools are available for tracking cash flow to help you manage your finances more efficiently.

How we determined the best accounting software

Then, you can use a cost-benefit analysis, or a process that helps weigh the strengths and weaknesses of a business decision, and put potential recurring benefits and cost reductions in context. By sending out invoices promptly and keeping track of payments, you can streamline your financial processes, minimize errors, and ensure timely payments. Accrual basis accounting is more complex because it tracks revenue when earned and expenses when incurred, regardless of when cash changes hands. For example, if you send an invoice to a client in December 2024 but don’t receive payment until January 2025, then you’d record that income for 2024, not 2025. Putting money management tips into practice can significantly improve cash flow management. But sometimes, the unexpected happens, and you’re left needing to cover an emergency expense.

Learn the basics of budgeting and forecasting

These days, your accounting software should have a cashflow statement as one of its standard reports. However, if not, these documents are very easy to create yourself and do not require any prior accounting experience at all. This simple cashflow template and accompanying article from the Association of Chartered Certified Accountants includes everything you need to know. It comes into the business as ‘income’ from customers and clients who buy your products and services.

Additional accounting software to consider

You may also be able to avoid cash flow problems and ensure you have enough funds to cover expenses and invest in growth. Whether you’re just starting out or have been in business for years, understanding the ins and outs of small business money management is key to long-term success. Your business credit score affects everything from qualifying for business credit to landing contracts and the rate you’ll pay for business insurance. The profit and loss statement, also known as the income statement, shows your business’s revenues, expenses and profit or loss over a period of time — usually a month, quarter or year.

how to manage small business finances

Small business management can be a challenging task, especially when it comes to maintaining a healthy profit line. One of the most critical aspects of small business management is managing finances, and if you’ve been sweeping that task under the rug, consider this your wake-up call. Ideally, your accounting software will make your day-to-day routine easier through automation. Here are some key factors to consider when researching and choosing the best accounting software for your small business. Offers industry-specific features for consulting businesses, nonprofits, manufacturing companies, professional services and more. Strong feature set includes thorough record-keeping, invoicing and advanced inventory management and pricing rules.

how to manage small business finances

Don’t underestimate the power of a little financial management, as it contributes to a healthy profit line. For professional and comprehensive accounting software for small businesses, consider using QuickBooks Online! It offers the latest bookkeeping features and can connect to various mobile apps for better time management and productivity.

You’ll understand the health of your business, more easily identify opportunities, and have a process to navigate any issues that may arise. Small businesses that are required to pay estimated quarterly taxes but fail to do so may be assessed a penalty by the IRS. There are three financial statements that all small businesses should consider creating.

You can contribute up to $5,500 to an IRA each year ($6,500 if you’re 50 or older). Annual percentage rates for invoice financing products range from about 11% plus the prime rate to 64%. We believe everyone should be able to make financial decisions with confidence. Before you dive into more complex financial management concepts with your team, try to identify any obstacles before starting the process. When you do decide to test the waters, here are some best practices to get off on the right foot. This ratio tracks increases and decreases in liabilities as a percentage of equity.

Equity funding, unlike debt funding, does not always require repayment if your business fails. However, you will likely have to grant your funders a seat at the decision-making table. Venture capitalists, angel investors and equity crowdfunding are all forms of equity funding. To learn more, read our guide to the difference between debt and equity financing. Measuring expenditures and return on investment (ROI) can give you a clear picture of which investments make sense and which may not be worth continuing.

how to manage small business finances

By tracking your expenses, you’ll be able to identify the areas where you can cut back and save money for your business. NerdWallet’s accounting software ratings favor products that are easy to use, reasonably priced, have a robust feature set and can grow with your business. The best accounting software received top marks when evaluated across 10 categories and more than 30 subcategories. With QuickBooks Enterprise, business owners can set up volume discounts and customize pricing rules according to sales rep, item category or customer in the Platinum plan and up.

Cash flow is the money coming into and going out of your business, tracked on a cash-flow statement. If you have positive cash flow, you have more money coming into your business – typically through sales or borrowed funds – than going out, to expenses such as payroll, inventory and rent. When you apply financial management concepts to your business, you can manage debt, use assets efficiently, control inventory costs, and assess profitability.

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