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6 Tips for Managing Small Business Finances

6 Tips for Managing Small Business Finances
Susan Guillory

Susan Guillory

Updated November 11, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
One of the common small business mistakes entrepreneurs make that can lead to business failure is not learning how to manage business finances properly. They might combine business and personal expenses in a single account or let their accounting software collect dust in between check-ins or make any number of other missteps.It’s understandable. Most of us don’t have degrees in finance, so managing accounts can be a pain. And reviewing the books can slip way down the long list of to dos most new business owners have.But you? You’re smarter than that. You’re ready to get tips on how to manage business finances so your business can thrive!

Why Managing Your Business Finances Is Important

Managing business finances is one of the most important aspects of running a business. Knowing, for example, how much revenues you have coming in can help you predict future sales. And keeping an eye on how much—and where—you’re spending money can help you manage your budget and spend smartly.If you’re carefully monitoring your accounts, you might, for example, notice you’ve been charged for software you no longer use. A quick click to cancel, and you’ve just saved your company money.Managing your day-to-day finances can also help you with the bigger picture. You can identify opportunities for growth in your business and seek out the best financing solution to achieve your goals.

Hire an Accountant or DIY?

Frequently, small business owners try to do everything in their company, often to their own detriment. It’s understandable that you’d want to save money, but sometimes it’s worth the investment to hire a professional who can do something better or more easily than you could.An accountant is a great example. You can hire a full-time or part-time accountant to send invoices, pay bills, file taxes, and generally keep an eye on your books. The time, anxiety, and potential mistakes that saves you may be worth the expense. Consider how much time in a given day you have to dedicate to reviewing your accounts, categorizing expenses, and following up on late invoices. If you don’t have the time, or if crunching numbers gives you a headache, seriously consider hiring a professional. Some accountants work freelance and can get the job done in just a few hours a month.

How to Manage Your Small Business Finances

Now that you understand how important this aspect of your business is, let’s examine how to manage your business finances in six easy steps.

1. Stay Organized

Want to know the secret of how to manage small business finances? Stay organized! Start with good accounting software that lets you automatically download transactions from your business bank account.Also, keep track of your receipts. Many accounting programs let you take a picture of a receipt, upload the image, and categorize the expense. If you have employees who make purchases for the company, get them set up to use the software or app, too.You may need other tools and software, such as an app that tracks the miles you drive for work or an invoicing tool. Get tools that are easy to use, otherwise there isn’t much point in purchasing and downloading them, since you’re not as likely to make use of them.

2. Don't Be Afraid of Small Business Loans

Part of managing business finance is looking into the future and anticipating your business’s needs. You don’t have to have a crystal ball to see that you might experience a cash crunch during a seasonally slow period. Or that buying a competing business might be your ticket to owning more market share.Rather than try to struggle through these periods of slow sales or scramble to find the money to take advantage of an opportunity for growth, consider a small business loan. There are several business loan types to explore. Some require high credit scores. Others require only minimal qualifications, though their terms may be less favorable. There are startup loans for small businesses and those for companies that are well-established. No matter what you’re looking for, there’s something for you.

3. Keep Good Business Credit

Before applying for a business loan, you’ll want to look at your credit score to see what you’ll qualify for. Knowing what business credit is and how to improve it is a key part of managing your business finances. The higher your personal and/or business credit scores are, the lower the interest rate and better the terms you’ll qualify for. That being said, if your credit isn’t stellar, you can do things that may help you build a stronger credit history over time, such as:
  • Pay your bills on time
  • Review your credit report regularly and report discrepancies
  • Minimize debt
There are credit monitoring tools you can use to keep an eye on how your credit score changes over time. Make a point of checking in on it monthly.

4. Monitor Your Books 

One key decision to make as you learn how to manage business finances is whether you will manage your finances yourself or hire an accountant.Regardless of whether you opt to hire a professional or not, it’s still your responsibility to understand and monitor your accounting books. As the business owner, you need to know where your money is coming from and going.

5. Understand Your Tax Responsibility

Business taxes are different from personal taxes in several ways, and one of the best tax tips for small businesses is to keep your business and personal expenses separate. Have a separate business checking account so that all business expenses funnel through there. That way, when it’s time to file your taxes (whether you do it or hire a professional), your expenses are easily categorized in your accounting software.Pay special attention if you took out a loan at tax time. Business loan payments aren’t tax-deductible and the loan proceeds you receive aren’t reported as taxable income. It might be wise to review what business loans can be used for while you’re at it, so you make sure you’re complying with loan requirements.

6. Plan Ahead

It’s easy to get stuck in “now thinking” when you’re running a business, but keep an eye on the future. Writing a business plan that includes a financial forecast and budget is always a good idea. Consider including versions for several time periods, such as a 1-, 3-, and 5-year business plan. Review it quarterly and modify as needed.If you think you’ll need a loan down the road, plan for it now. Work on building your credit and set a budget that includes your monthly loan payment so you don’t risk defaulting on the loan.

Looking to Fund Your Small Business?

Now that you know a bit more about how to manage a small business’ finances, how will you change your practices? Will you hire an accountant or take on the work yourself?You can take one task off your plate: searching the web for a loan. With Lantern by SoFi, comparing small business loans takes just a few minutes. Enter a few details about your business and get offers from multiple lenders in our network.

The Takeaway

Starting a small business isn’t easy. But following the tips in this article can help you keep on top of your business finances, and that’s one of the key components of success.
Photo credit: iStock/bymuratdeniz
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021200

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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