Managing Your Finances as a Business Owner
AD| As a business owner, no matter how big or small, it is crucial to effectively manage your finances to ensure the business remains stable and successful. This requires an education; you will need accounting skills, like how to apply for a loan or how to draft a financial statement. Make sure you’re clued up on all of the finance related terminology, like VAT, PAYE, corporation tax, etc. Important financial decisions will need to be made even before you launch your business and extra resources might be necessary.
All limited companies are required by law to have a separate business account. Sole traders don’t have to, but it might save you some finance related headaches in the future to have a unique bank account specifically for your business. It’s probably worth investing in some sort of accounting software. Even if you’re running something completely unique, like a farm, there is farm accounting software that can help you keep things in order. Often, this type of software is used in conjunction with a professional accountant to keep on top of your financial obligations on an ongoing basis, like submitting tax returns.
Keep an eye on your cashflow at all times. You can do so by creating a cashflow statement and forecast. Your accounting software should contain functionality that allows you to download a cashflow report, but if not, they’re not too difficult to make yourself. These statements essentially show how much money is coming in and going out of your business over a particular period, allowing you to ensure there is enough cash to operate your business effectively. You may need to take out a loan at some point. This can be scary, but it will be worth it because it will allow you to buy the equipment you need and hire staff to help you get your business of the ground.
Don’t forget to pay yourself. It can be easy to get carried away and invest any extra capital back into the business to ensure it continually grows. Seeking out opportunities for growth is crucial and you should certainly keep some money aside for this, however, you play an important role in your company and should therefore be compensated accordingly.
As a business owner, one thing you should definitely start doing is planning ahead. There will always be random, unforeseen issues, so it’s crucial to keep your finances in order so that these issues can be dealt with, with limited repercussions. You could even create a “rainy day fund”, savings that mean you don’t have to rely on things like credit cards or overdrafts to cover unexpected fees.
Ultimately, managing your finances should not be an afterthought, especially if you want to survive long-term.
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