Owning and operating a business can be highly rewarding and fulfilling that many dream of but only seldom accomplish. Even those who are fortunate enough to stick it out and launch a successful business, maintaining one is a whole different ball game. In fact, did you know that most startup businesses fail within the first five years of operation? This is because one of the most challenging areas of maintaining and operating a business is finance.
Here are some basic tips on how to keep your business finances healthy.
Invest in Bookkeeping Software
Whether you hire a bookkeeper, accountant, or manage your own expenses, it’s a good idea to invest in reliable and robust bookkeeping software. This will not only help you to keep track of all your expenses and spending for your business, but it will also help your bookkeeper and/or accountant. He or she will be able to run and analyze reports to determine the fiscal health of your business.
Track All Expenses
Even if you run out right now and buy the best of the best bookkeeping software, it’s only going to work for you if you use it. This means keeping track of all your business expenses…and receipts. Some typical business expenses include:
- Meals and Entertainment
- Office Supplies
- Vehicle-related Expenses
Don’t Forget About Taxes
One of the perks to owning and running a business is taxes. However, depending on your business formation and where you run your business, taxes might hit you differently. For example, if you operate a business out of your home, then you will be able to claim a number of home-related expenses, such as utilities, as operation expenses on your taxes, reducing your overall gross income.
For businesses that rent office space, a warehouse, or lease a vehicle, these are all considered tax-deductible expenses. However, for larger businesses with employees, your business will also need to pay quarterly taxes on those employees.
There are a number of tax benefits and disadvantages to running and operating a business. Be sure to discuss these with your accountant or CPA to ensure you are getting as many benefits as possible.
Calculate Your Profit Margin
No matter the business or industry in which you operate, every business has a profit margin…or should. After all, we are in business to make money and conduct, well, business. Once you’ve tracked your income, expenses, cost of goods sold, paid taxes, etc,. whatever is left over is where you will find your profit margin. Typically all income less expenses and liabilities is your profit margin.
Once you’ve determined your profit margin, you can then determine what you need to make in terms of making sales and generating revenue to either make or break that mark. You may also need to adjust your pricing and/or fee structure in order to maintain a healthier profit margin.
Audit and Evaluate
Once you’ve finally wrapped your head around accounting 101, you can then audit your business and then evaluate. Do you need to charge more? How many sales do you need to pull in per month to meet your minimum margin and P&L? How many new clients and customers do you need to take in per month to make sales? Where can you cut spending?
These are all great questions you can ask yourself as a business owner to ensure that you are maintaining your business finances at a healthy level. While it may take some time and effort to set up bookkeeping, payroll, and begin tracking and managing expenses, it will pay off (literally) in the long run.
Lendio’s mission is to fuel your American Dream by making small business loans simple through options, speed, and trust. Whether you are looking for business financing or just need advice on the matter we are here to help. Finding out which business loan is best for you is why we’re here.