One of the toughest aspects of running a business is managing the money that comes in, and that goes out. As entrepreneurs, we often times do not know how much money we will earn month to month, making it difficult to save, pay ourselves a consistent salary and reduce debt.
But, if your goal is to support yourself full-time in your business, learning how to manage the books will be essential for you.
While it is helpful to work with a financial professional, if you are just starting your business it may not be a service you can afford at the moment. And even if you can afford it, it is still important to know some accounting basics.
So, how do you do it? How do you manage your business money?
Money management is just a fancy term for organization. Once we have our funds organized and in one place, we can start making making sound decisions on how to run our business.
My rule of thumb is: “The moment you spend your first dollar on your business, you need to start tracking your cash.” (Click to tweet this out!)
This is a whole new ball game. It’s time to Turn Pro, develop new habits and establish a frame of mind that your business is just that: a business. More specifically, it’s a business that needs to be respected, honored and taken seriously. Otherwise, you run the risk of staying in “this is just a hobby” mode, which will affect the amount of money you make and keep.
The first step in Turning Pro is to honor the money that you invest into the business as soon as you make your first purchase. Whether it’s $5 on a package of sparkly pens or $2,000 on a business course, now is the time to sign up for an accounting program so you can start tracking your cash.
In addition to mindset, there are three “practical” situations in which you’ll need sharp financial records:
- When you want to secure financing. If you are looking to get a loan or funding from an investor, they will want to see comprehensive financial reports that are as accurate as possible. A bookkeeping program allows you to run these reports quickly and demonstrates that you are serious about your business.
- To file quarterly and annual taxes. At some point, you’ll want to hire a tax professional . The more difficult it is for them to gather the data from different sources like your Excel spreadsheet, credit card and bank statements, Etsy and PayPal accounts, the more time the work will take them. And that means it will cost you more money to work with them.
- If you want to hire an employee or expand. Do you want to grow your business? Maybe open another location, launch a new product or service, or hire a publicist or assistant. Or maybe you want to know that you can take three weeks off to travel the world and not have to worry about covering the bills. Whatever your business growth goals are, you need a clear understanding of where your business stands currently and how much you will need to make in order to reach your goals.
Hopefully, you’re now anxious to start using a bookkeeping program! When looking for the best one for your business, make sure that it has an online product offering. An app is even better.
This will help reduce paper usage (which is great for the environment!) and will allow you to be able to manage your finances from anywhere in the world. And when you are ready to hire an accountant, she can access it from her office too. While there are a lot of good options on the market, I’m a huge fan of Xero and recommend it to a lot of my clients.