Congratulations!! You’ve chosen a name for your business, printed up business cards, and your website is up and running. To top it all off, you just got your first client! Your dreams of entrepreneurship have been realized!
If you haven’t laid out a plan for financial practices, now is the time. For some, this can be thought of as a daunting and nerve-racking task, right up there with having to deal with the IRS. But following a few simple (yet important) steps can make a difference between running a successful business, or struggling to keep operations afloat.
“Timing is everything.” Don’t wait until business expenses and revenue have built up to start tracking them. There are plenty of free and low-cost options for accounting software, depending on your size and type of business. If you have “Accounting Phobia”, hiring a bookkeeper can be a good option and isn’t as expensive as you might fear. Tracking and reviewing how your money is moving can help when it comes to fine tuning your business expenses.
“Keep business and pleasure separate.” Open a business checking account and keep it separate from your personal finances. If your business is starting out small and you do not have start up loans, it is definitely okay to use your personal funds to open a business account. This would be considered ‘owner equity’. As your business grows and makes money, it can pay you back as an ‘owner draw.”
“Get the revenue stream rolling.” Stay on top of your receivables by invoicing your customers as soon as the product or service is delivered. Invoices should always have payment terms listed and, you can even offer a discount to encourage early payment before the due date.
Always follow up by sending statements, which are a listing of the unpaid invoices on a customer’s account. Not only is this a good way of reminding your customer that their balance is due, it also alleviates issues of lost or misplaced invoices and clients claiming they didn’t know they owed you money.
“Be a penny pincher.” Receiving those first few client payments can be an exciting time. As you see your bank account balance increasing, it is natural to want to buy more things for your business. Maybe you want to do more advertising, or build a better website. Before going off the deep end and spending your hard-earned money, take one step back. Figure out what your short-term goal is. If you want to increase business, consider printing up your own ‘referral coupons’, and inserting them in with the client invoice. Not only does this motivate a current customer to advertise your business by word of mouth, it also encourages repeat business.
“Maintain balance.” You may have already learned the importance of balancing your checkbook. But with today’s electronic banking, paper statements and balancing have gone by the wayside. Many young people are unfamiliar with what a checkbook even is these days! With a business, however, it is vitally important to keep your records as accurate as possible. Balancing your accounts, also known as “reconciling,” should be done on a regular basis; preferably monthly, when bank and credit card statements become available. Doing this will ensure that all expenses and income are accurately recorded. Regular reconciling of accounts also gives you accurate numbers when running financial reports, such as a “Profit and Loss” statement, also known as an “Income Statement.”
“Google it.” Don’t let business finance scare you. There are many resources that can be found on the internet which will answer your questions. A great place to start is the Small Business Administration website: https://www.sba.gov/. There you will find guides galore to answer the many questions, financial and otherwise, that you may have as a small business owner.