14 Tips for Managing Small Business Finances


Did you know that over five million people applied to start new businesses in 2021? With the number of small businesses in the United States continuing to grow, you may be wondering how to manage finances for your own small business.

If finances and budgeting confuse you, then you do not have to make it complicated. Read on to learn about 14 strategies you can implement in your life for managing small business finances today.

1. Set a Budget and Update It Regularly

It may be tempting to spend a lot when you launch your business to start making money. However, you should still keep track of what you buy and form a small business budget that you can work with regularly.

The budget can be as generalized or itemized as you wish, but it is a good idea to break it into categories such as payroll, inventory, subscriptions, and miscellaneous spending, to name a few.

When you first calculate your budget, it is a good idea to leave extra room in each category for unforeseen expenses. For instance, if you hire a freelance contractor to help set up a program, it may cost you a little bit extra one month.

If you find yourself constantly going over your budget, you should look at your spending and update the budget if necessary. Sometimes those expenses are unavoidable, so it is better to increase your budget than come up short every month.

2. Pay Yourself First

One of the biggest pieces of financial advice for any new small business owner is to pay yourself first. This means that once you have your revenue for the month, give yourself money to pay for your personal expenses, such as a mortgage, bills, and groceries.

It is best not to mix business and personal expenses. Even if you are only a one-person operation, you should still open up separate accounts for everything related to your business. This can be crucial if you are audited or you need to access the money to file taxes.

If you struggle to justify paying yourself, think of it like you are an employee who earns a salary. The labor that you performed as a small business owner deserves as much compensation as any employee who works for a paycheck.

3. Learn About Tax Credits and Write-Offs

As a small business owner, you are eligible for many different tax credits and write-offs come tax time. This can significantly reduce your tax burden, so it is worth it to learn about them before you file your first tax return.

You should also look into the different tax credits that your state offers to small businesses. They may be different from the federal credits and help you save on your state taxes as well.

Many of your business expenses can qualify for tax write-offs. For instance, if you work from home and you have a separate room for your small business, you are eligible for the home office tax credit.

Other potential write-offs include car and gas mileage expenses, utility bills such as water and electricity, and the cost of new office supplies like computers and printers.

With the coronavirus pandemic, there are now more tax credits for small businesses than ever before. For example, the Employee Retention Credit, or ERC, gives grants to businesses that maintain their employee payroll. Learn more about it at ERC Today.

4. Know Basic Bookkeeping Principles

You should learn how to bookkeep to ensure that you know where your money goes every month. Although this can seem daunting at first, you will soon be able to see its benefits.

Many community colleges offer introductory accounting courses that can give you a good foundation to manage finances. Some professionals will create courses on sites like LinkedIn learning where you can pay a small fee for lifetime access to the class.

You can also find free videos on sites like YouTube for any specific bookkeeping questions that you may have. For small businesses with simple finances, you may be able to do the bookkeeping all on your own.

5. Consider Hiring an Accountant

If you feel like your business finances are too complex, then it may be in your best interest to employ an accountant. Some of your options include an in-house accountant or accounting team, a third-party accountant, or a freelance accountant who helps you on an as-needed basis.

As a small business owner, you can delegate it to the accountant to manage finances. This way, you can focus on other items that need your attention, such as product development or advertising.

For an accountant that you hire as needed, you can ask them for financial help and financial advice if you have problems managing small business finances.

6. Set up Your Payroll

When you hire an employee, you need to set up a payroll system. A payroll system includes employee documentation, a pay cycle, and compensation forms so you know how much everyone gets paid.

Since this can be overwhelming, you should consider hiring third-party software to do the job for you. You can input your employees’ information and let them take care of the rest.

You also need to report your payroll taxes to entities such as the IRS. Make sure to keep all documentation organized and easily accessible in case you need it quickly.

7. Meet IRS and State Tax Requirements

You should not have to scramble for all of your paperwork and forms when tax season arrives. Before you start your business, it is important to look up requirements from taxing authorities that you may need.

For instance, if you register your business as an LLC or corporation, you might have to pay an annual fee or a tax voucher. It is ideal to write down in your calendar or set a reminder for when important forms are due.

8. Keep Petty Cash on Hand

You never know when you may need extra cash to pay your employees or for other business-related expenses. Therefore, you should always have some petty cash on hand to ensure that you are never left without money.

If you run a business that has a cash register, petty cash is extremely important. You need it for loading the register each day and making change for customers who pay with larger bills.

In general, you should have at least a couple hundred dollars in petty cash on hand at all times. This number may be larger if you run a business selling goods and services directly to the public.

9. Save All of Your Receipts

As a small business owner, it is very important that you save all of your receipts. These need to be saved and documented for a variety of purposes. When in doubt, stashing the receipt away and not needing it later is better than potentially misplacing money.

If you claim business expenses on your taxes for write-offs, then taxing authorities may ask for documentation if they decide to audit your business. You can scan the receipts or send in physical copies as evidence.

Receipts are also vital if you want to form an accurate budget for your business. Expenses such as food and other supplies may not seem like a lot at every transaction, but they add up. You can get a good picture of what you spend before establishing a budget.

Many types of accounting software let you import your receipts so that you do not have to worry about saving them. This way, you will have a digital record of your spending and you will not be weighed down by paper.

10. Design a Billing Process

If you provide services or you charge for your time as a small business owner, you need to find a way to bill your clients. How you bill depends on the type of service you provide and how much you need to charge them.

For example, many high-end businesses such as law and accounting firms will bill periodically with an invoice to clients. Clients are expected to pay the invoice in full within a certain time period.

However, if you do work for a flat fee, then it may make more sense to bill upfront. Once the service has been completed, you can charge the fee and process it immediately.

11. Take Out a Loan If Needed

Being in debt does not have to be a negative thing if you use your funds effectively. In fact, many financial advice professionals and websites will tell you that starting with revenue upfront is key to helping your business thrive.

Visit your financial institution and ask about personal and business loans. Chances are, you will need to have solid credit and even need to put up something as collateral. This way, the bank will be more likely to give you a loan if they can get their money back.

Factor in your loan payments when you design a monthly budget. If possible, you can try to pay off the loan more quickly to avoid interest accumulating.

12. Invest in Growing Your Business

Although it is vital that you take out a paycheck for yourself, it is equally as important to invest in your business. It is up to you to find the balance between the two, but putting more funds into your business will help it grow.

Make sure that the revenue is directed at fixing a specific problem or bolstering an area. When you start your business, you may want to put more money into advertising so that you can have a larger customer base and more revenue.

If you find that there is too much work for your current employment situation, you can evaluate whether it is worth your time to add more help. You can delegate tasks to lower-level employees and focus on needs higher up in the company.

You can also ask your employees what they think you should do with extra funds. You can also use the excess revenue to give out bonuses and invest in your employees. Happy employees are more productive and less likely to switch jobs.

13. Always Have Emergency Funds

You should always factor emergency funds into your small business budget. You never know when something might happen that could cost you extra money, and it is best to be prepared.

Set aside money in a separate bank account for your emergency fund. You may need to work with an accountant to evaluate how much to put in, but it needs to not mix with your regular business expenses.

If you want to earn a little bit of interest on your emergency savings, consider depositing the money into a high-yield savings account. You will still have access to the money, but you could make a few extra dollars while it sits in the account.

14. Review Your Finances Periodically

In order to effectively manage finances as a small business owner, you should review your spending on a regular basis. Check your budget every month against what you spend and make adjustments as needed.

In addition, you may want to have an accountant create financial statements every quarter or at the end of the year. This could give you a big picture of how much goes in and out of your business. Financial statements are a valuable tool for evaluating the worth of a business.

If your business grows rapidly, then you may want to review your finances even more often. Overall, it depends on each unique situation.

Managing Small Business Finances: Use These Tips

Whether you are just starting your small business or you want to change how you manage finances, you should not have to worry about staying financially solvent. With this guide to small business finances, you can rest easy knowing that your money is taken care of.

Want to learn more about all things related to business growth? Check out our site for more tips and tricks for expanding your business and gaining clients and revenue.