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6 Tips for Managing Small Business Finances

6 Tips for Managing Small Business Finances
Susan Guillory
Susan GuilloryUpdated May 4, 2023
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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, let their accounting software collect dust in between check-ins, or make any number of other missteps.It’s understandable. Many of us don’t have degrees in finance, so managing accounts can be a challenging, sometimes overwhelming, task. The good news is that staying on top of your business finances may be as complicated or time-consuming as you think. Here’s a look at six simple ways you can better manage the financial side of running your own small business.

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 revenue 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 types of small business loans 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 efficiently than you could.An accountant is a great example. You can hire a full- 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, you may want to 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.A great place to start is to purchase a good accounting software program that lets you automatically download transactions from your business bank account.You’ll also want to keep careful track of all of your company’s 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. Look for 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.Recommended: How Do You Categorize Expenses for a Small Business?

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. While you may be nervous about taking debt, a business loan or line of credit can help you manage cash flow during a slow season, upgrade equipment to boost efficiency, and take advantage of investment opportunities without waiting until you have enough cash. A loan can also help you build business credit (more on that below), which could help you qualify for even better financing options down the road.There are several many different types of business loans. Some require high credit scores. Others require only minimal qualifications, though their rates and terms may be less favorable. There are even startup loans for small businesses that are not yet well-established. No matter what stage your business is at, there may be a loan that can help you get it to the next level.

3. Keep Good Business Credit

If you think you may ever need outside funding, you’ll want to be sure to maintain good business credit. This can help attract investors and also give your business access to financing with low rates and attractive terms. If your business currently has a poor or limited credit history, there are a number of ways to build business credit, including:
  • Paying your bills on time
  • Borrowing from lenders that report to credit bureaus
  • Setting up trade lines with vendors that report to credit bureaus
  • Keeping tabs on your business credit report to ensure all of your information is accurate
  • Not taking on more debt than your company can afford

4. Monitor Your Books 

As mentioned above, one key decision you’ll need to make as you learn how to manage business finances is whether you will manage the company finances yourself or hire someone to do it for you.Regardless of whether you opt to hire a professional or not, you’ll still want to understand and keep an eye on your accounting books. As the business owner, it’s critical that you know where your money is coming from and where it is 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. Even if your business is small, it’s wise to have a separate business checking account so that all business income and expenses funnel through there. This makes it easy to know what your business earned and what it spent come tax time. In addition, your business-related expenses will be easy to identify and categorize.If you have any business loans, you’ll want to keep in mind that loan proceeds aren’t reported as taxable income. And while the payments you make towards repaying the principal are not tax deductible, the interest you pay on a business loan is typically considered a deductible expense. Recommended: How Much Can a Small Business Make Before Paying Taxes?

6. Plan Ahead

It’s easy to get stuck in “now thinking” when you’re running a business, but it’s critical to 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  one-, three- and five-year business plan. Review it quarterly and modify as needed.Recommended: What Are the 5 Stages of Business Growth?

Looking to Fund Your Small Business?

If you're looking to grow your business with a small business loan, Lantern by SoFi can help. With our online debt financing marketplace, you can compare small business loan options (including SBA loans, lines of credit, and short-term loans) without scouring the web and checking multiple sites. With one short application, you’ll be matched with a loan offer that meets your company’s needs and qualifications.Let Lantern help you find the right financing solution for your small business.
Photo credit: iStock/bymuratdeniz

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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