Business finance organization reduces the potential for unexpected monetary loss and helps make your business more attractive to investors. Business finance organization also requires smart financial practices. For example, 46 percent of small business owners use their personal credit cards to finance their business, Entrepreneur notes. While personal credit cards are an easy source of instant borrowed money, personal credit cards for business purposes come with high interest rates and are not a stable strategy for long-term business financing. Evaluate your business finances and use the following steps as a guide.
1. Separate personal and business finances
Separating these finances reduces personal liability, makes tax preparation easier, helps you manage bills, and makes your business more appealing to potential investors, emphasizes SBA.gov. Open a separate business checking account and funnel business funds directly to that account. Then you can easily keep track of business expenses for tax time.
2. Open a business credit card
Entrepreneur found that 34 percent of businesses used business credit cards. Replace personal credit card expenses with business credit card expenses as a natural outcome of separating your financial streams. Then select a card that offers incentives and rewards your purchases. American Express offers business credit cards that give up to 5 percent cash back for select purchases.
3. Learn basic bookkeeping
As opposed to someone doing your books for you, NFIB.com recommends learning basic bookkeeping and accounting yourself. Twenty-five percent of small business failures are related to accounting mishaps. The more you know about your books, the more you’ll understand your business financial health and the smarter your business decisions will be. Look for accounting classes at your local adult education center or community college. Teach yourself through Web-based resources. You can still hire a bookkeeping assistant, but you should be able to quickly grasp your financial state by looking at your books.
4. Get loan savvy
If a business credit card is part of your finances, it should not be your sole source of business income. Try to avoid relying on credit as the quickest and best source of immediate cash. Become familiar with business loan sources, such as lines of credit, short-term loans and regular-term loans. As you learn about business funding sources, develop comprehensive and compelling loan proposals. It’s a mistake to think you’ll only need one business loan; many small businesses need several loans over the course of the business lifetime to maintain success. You’ll also need to provide financial statements that demonstrate business health when submitting loan proposals (which is easier when you have bookkeeping experience.)
5. Learn to invest profits
As a new entrepreneur, most of your income goes back into the business to offset debt and grow the enterprise. Once you’ve gone from red to black, you can start to look at options for handling that income. While you invest in the business, smart options also include investments in stocks and capital growth. Your accountant, money manager or financial planner can help you determine whether to invest income or channel it back into the business.