No matter what kind of business you may want to start, sound finances will be an integral part of your ultimate success or demise. Every business with great ideas is doomed to fail if they cannot get their finances in order. By better understanding business finance and better managing their cash flow, first-time business owners can create a leg up on their competition.
Finances Involved In Starting A Business
One of the first things you’ll likely need to consider when starting a business is your credit score. Small business owners, the need to build and maintain a high credit score is vital to start the business, and it never really becomes any less important. This is because most businesses require a revolving line of credit in order to make day to day purchases to keep operations running. A good credit score can lead to better interest rates on this line of credit. Some lenders seem to give more weight to your personal score than others (commercial banks and other traditional lenders fall into this category) when they evaluate your business loan application. However virtually all lenders, both public and private include a review of your personal credit score when they evaluate your business’ creditworthiness.
Additionally, the best businesses are able to track their spending almost down to the penny. By knowing where all of your money is going, it can become easier to identify where spending needs to be cut should this ever be necessary.
If you are not ready to engage a professional book-keeper, it is still possible to use a powerfull system to keep track of income and expenses, and even compare these figures to a budget. Many Point of Sale software systems can tie your cash register right into your accounting software. If you are not starting a retail business, you can still have easy access to an integrated accounting system that will provide you with the ability to do estimates, and invoicing in a completely integrated fashion, that ties right into your accounting software. Most of the better small business accounting systems have payroll modules built right in, or as a low-cost addon. If you have less than a handful of employees, you might find that a system like QuickBooks, by Intuit, will save you the expense of dealing with a payroll company such as ADP or PayChex. Other top small business accounting software providers are ZarMoney(™), Tipalti, and Sage. Of these systems, Quickbooks is really the standard that everything else is compared to. Read this review on Quickbooks for more information.
Money Management For Businesses
The single most important money management tip for running a business is to create and stick to a budget. As discussed above, most small business accounting programs include robust budgeting modules. A well thought out budget will allow you to spend only what is necessary to grow the business and keep you from overspending on impulse buys. Those who carefully plan and execute a detailed budget know exactly how much inventory needs to be on hand, how much revenue needs to be brought in to cover all expenses, what can be spent on advertising and marketing, and at the end of the day, what it takes to turn a profit.
A big part of the budgeting process is to always seek out ways to cut costs even when they aren’t always obvious. One such way is to reduce your electricity costs by switching to a lower cost provider, if you are in a state that has deregulated power providers. If you live in one of these states you have the power to choose your own electricity supplier:
- District of Columbia
- New Hampshire
- New Jersey
- New York
- Rhode Island
By obtaining a new supplier, you can often lower your electricity bills each month compared to what you might pay your local utility.
Tax Tips And Tax Breaks For Small Businesses
Having your business highly tax optimized can put you at a huge advantage over your competitors. By only paying what is necessary for tax revenue, you are increasing the amount that can be reinvested back into the business. One of the most important tax tips for small businesses is to use tax preparation software. These tools help to keep all of your expenses, purchases, and sales in order to ensure that nothing is missed and everything is accounted for. Additionally, you should always be on the lookout for deductions. This can include things such as funding a retirement account like an IRA. All funds contributed to an IRA are fully deductible from your annual tax bill. Other deductions include the costs to maintain a home office or any costs related to work travel which you have paid for out of pocket.