If you are a small business, you’re in good company. The majority of United States businesses (99.7%) have fewer than 500 employees, with 89% of businesses having less than 20 employees.
To survive and stay competitive, successful small business owners must be savvy with what they have. Managing your small business finances well will keep your business running smoothly. Are you just starting out and looking for guidance? Or are your small business finances in need of a revamp? Here are a few guidelines to help give you an edge.
Start with the Basics
A balance sheet is a statement of the assets, liabilities, and capital of any given business. Balance sheets function as the foundation of small business financials and are a crucial element to successfully managing your professional budget. To maintain an accurate snapshot of the financial health of your business, it is important to track capital and account for costs such as employee salaries, business equipment, and supplies. A well-kept balance sheet will provide a straightforward cash flow projection for the future and help document operational efficiency.
Keep Thorough Records
By keeping detailed records, it will be easier to analyze company values so you can foresee potential hurdles and effectively strategize to overcome them in advance.
In your balance sheet, be sure to categorize expenses. This will allow you to perform a cost-benefit analysis (CBA) to evaluate the outcomes of various business decisions and contextualize future choices. A CBA involves adding the potential benefits expected from a situation or action subtracted by the total costs associated with taking that action to determine the financial success rate in terms of a dollar amount. If the benefits determine to be higher than the cost, the project as a net benefit to the company.
If you are running into cash flow issues, it is time to adjust your budget. Or, if you haven’t been budgeting, it is important to implement a budget moving forward.
Most businesses keep two sets of records to lessen any worries about losing data: one physical copy and one digital copy, often stored in the cloud. Having a physical record can provide peace of mind and ensure all files are accurate and up to date.
Accrual Versus Cash Accounting
Small businesses generally use either an accrual or cash accounting method when it comes to recording purchases. Accrual accounting includes recording transactions on the books directly upon completing a sale, while the cash accounting method postpones recording transactions until a payment has been made or received.
Some business owners favor the accrual method because it can provide tax benefits; however, it is more complex to manage. The cash method, while easier to understand, tends to offer less of a predictive value regarding future clarity.
Generally Accepted Accounting Principles (referred to as GAAP or Gap) offer a customary way to standardize financial reporting via the accrual method. GAAP is intended to ensure complete and accurate financial reporting between businesses, which allows for quick and precise cross-company comparisons. Because GAAP standards deliver transparency and continuity, they enable investors and stakeholders to make sound, evidence-based decisions. The consistency of GAAP compliance also allows companies to smoothly evaluate strategic business options.
Invest in the Right Software
Accounting software is a great tool to improve collaboration between departments and reduce operational costs through a centralized database. Online bookkeeping can also simplify yearly taxes by automatically categorizing all your expenses and implementing the correct tax codes.
From basic invoicing and billing, to overall project management, accounting software is an essential tool for all your business' financial data. It also helps manage clients, streamline bank accounts, and generate insightful financial reports that help your business grow easily and continuously.
Work with an Expert
When it comes to making decisions about your small business, having a financial advisor on your side is always an asset.
At Triumph Capital, we specialize in managing small business finances and can help to establish a clear future for the wealth of your company. We hold our fiduciary obligation in the highest regard and aim to empower our clients with financial knowledge and comprehensive plans that are easy to digest and uniquely tailored.
As one of the top registered investment advisors in the Denver area, we feel confident in our ability to help you with your financial goals in the short term, long term, and everything in between. Contact us today to get started.
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