To succeed in business, you need to have a strong understanding of financial and accounting concepts. These concepts are essential for making sound financial decisions and managing your business’s finances effectively.
This article will discuss some of the most critical finance and accounting strategies for small business that every business owner should know. We will also provide tips for implementing these strategies into your business. So, if you’re looking to learn more about finance and accounting basics, without further ado, let’s jump right into it!
Here are business financial accounting skills, and strategic financial management;
1. Use proper finance software.
Using proper accounting and financial management software can simplify your bookkeeping tasks and make it easier to manage your business’s finances in one place.
It is especially helpful when you have a lot of transactions or an irregular cash flow.
You can also use the software to perform month-end procedures, apply for financing, and run reports on sales, profit margin, and expenses. Accounting software allows you to keep track of all transactions in one place and generate reports for managing your business.
Additionally, you will save time and effort spent trying to maintain separate records in multiple places, such as Excel sheets. Several different accounting software programs are available on the market today such as QuickBooks and Freshbooks to name just a few.
2. Develop a budget.
Sticking to a budget is one of the most important financial management strategies that you can implement for your business. By creating a budget, you can set spending limits and monitor your inventory, sales, and expenditures. It also allows you to make better decisions on how much financing you need for your business. With a proper budget, you can estimate your expenses, forecast future cash flows and determine possible sources of financing.
3. Track your expenses.
Tracking your business’s daily, weekly, and monthly expenditures allows you to monitor how much cash is going out of the company. This enables you to track trends over a period of time and determine if there are any unnecessary or unsustainable expenditures that can be cut down or eliminated from your business.
The major benefit of tracking your expenses is that you will have an idea of how much cash you need each month to keep your business running. With this idea, you can easily plan for the future, in case anything goes bad with your company, you have an idea about what to do and how much money you need to keep things running.
4. Different business and personal accounts.
Basically, you need to separate your business transactions from personal ones.
Separate accounts help you track all of your business’s expenses and income separately for accounting purposes. Also, it can be helpful in cases where the IRS audits your business or when you are applying for financing.
A lender or investor will request financial records to make sure that any funds they provide are used only for the company. Another reason to use different business and personal accounts is to help you analyze the performance of your business. It’s very necessary to have a complete analysis of your company. Otherwise, you will not be able to find loopholes and fix them.
5. Manage accounts receivables carefully.
To control your cash flow, you need to understand your accounts receivable assets and manage them properly to control your cash flow. To do so follow these steps:
Calculate the Bills Due Date.
Calculate first the due date of the bill. It should be a maximum of 30 days from the Invoice Date but not more than ten days from the Finished/Sold Date.
Calculate The Discount Rate.
If you have experience in selling to a specific client, then there is a chance that they will pay your invoice before it is due. If so, you must calculate the discount rate. It is basically an estimated interest rate of money you expect to lose because this client did not pay your invoice on time. Base it on how long has passed since you issued the bill and if they paid early or late in previous times. Finally, if the customer pays after the due date, they will be charged this rate (A pre-defined rate).
6. Payment terms.
It is good to set up payment terms for every new client that you get for your business, even if they are family members or friends because it helps you plan your cash flow more effectively and avoid cash flow shortages.
You should make sure that a client’s payment terms meet your business’s financial goals. If you’re having difficulty making ends meet, stick with 15 days or less. On the other hand, if you have plenty of cash available and want to accelerate your growth, try offering 30 – 45 days for payments. If a client is unable to pay the amount due in that time frame, then you should consider extending the payment terms or finding a new client.
7. Hire a professional accountant.
Hiring a professional accountant can help you handle all of your business’s financial matters so that you do need not to worry about handling them. It is your accountant’s job to help you keep track of your books using proper accounting methods and keep track of your income and expenses as well as make projections for the future.
Some things to keep in mind when looking for an accountant are:
–Choose a CPA who has experience in the specific type of business you have, so they can offer you advice tailored to your situation.
–Make sure they have relevant experience working with businesses similar to yours.
–Make sure the accountant’s hourly fee is reasonable and that they do not charge per transaction or require a minimum monthly retainer.
8. Backup for accounts data.
It’s always a good idea to create automated backups of your account data (invoices, bills, etc.) daily.
Additionally, you can take the following steps to prepare for the worst-case scenario:
–Create an emergency fund of several months’ worth of expenses that you can use if cash flow problems arise between billing clients and receiving payments from them.
–Create a contingency fund to finance any unexpected expenses.
9. Credit card processing.
Businesses that receive payments for their products and services have the option of accepting credit card payments from clients, making it easier for them to get paid immediately for their products and services. Credit cards enable you to get immediate payment without having to wait until your customer’s next payday.
Consider using a credit card processing service that will give you access to applications that are customized for your business type. This allows you to avoid the hassle of setting up customer accounts on your own while giving you more control over how transactions are processed through your corporation’s merchant account.
Credit cards also offer you a quick and convenient way to get paid by anyone in the country, so they’re a good option for getting cash quickly.
10. Collecting on past due accounts.
Even if you do not want to be like your competition and resort to hiring a third-party collection agency, keep in mind that it is still important for you to maintain good relationships with your valued clients. You should remind delinquent customers that you have not received payment even if they just tell you that it is coming and ask them for the full payment amount in one shot.
If your client continues to be unresponsive, then you should consider sending a letter or email asking them to pay within 30 days or else face legal action.
If the customer still does not respond after this point, then make sure that any information such as phone numbers and addresses is up-to-date so you can contact them more easily.
If they still do not respond after 30 days of nonpayment, then you should send them another letter stating that they have breached their contract and demand full payment within 15 days or else risk an additional $100 for fees and damages.
If they still do not make a payment, then you should take them to court and prepare to take the appropriate legal action against them.
11. Tax planning.
Tax planning is essential in order to reduce your monthly tax liability by taking advantage of deductions, credits, and specific tax situations (i.e., sole proprietorship). You’ll find this information on Form 1040 – Schedule C. Be sure to also plan all of your business transactions with the end of the year in mind.
You should consider various factors such as expense timing, payment dates, and expected income dates to avoid any tax surprises at the end of the fiscal period. Also, you should remind clients that payments are due on certain dates instead of just asking for payment when you invoice them. This will enable you to avoid any tax surprises at the end of each fiscal period.
Conclusion.
To conclude things, it’s important to restate that no matter how well you plan things, there will always be some kind of glitch every once in a while. It is imperative that you get an accountant or somebody else who knows the ins and outs of the business world and have an understanding of financial strategy to help you take care of these financial matters. Always remember that this might be a pain but it’s something that you have to go through in order to become a successful business person.
