There are some skills that come naturally to entrepreneurial spirits, and some skills that must be forged through fire. Financial management always seems to fall into the latter category.
Truth be told, all budding business owners struggle with the financial aspects of managing their own business. But as daunting as juggling your company finances sound, the actual process is not as difficult as you might think.
In fact, these six great money management tips can help you make quick and easy work of becoming a CFO in the making. Read on to learn more about how you can handle your business finances as an entrepreneur or small business owner.
1. Spend where it matters the most
The old adage ‘you have to spend money to make money’ does hold a very valid point, but not in the way you may expect it to. As a business grows and accrues more profits, so too does its risks. That’s what makes expenses like professional indemnity insurance and workplace safety audits an essential investment for many growing businesses today.
It’s simply crucial for business owners to maintain a sufficient budget for their business’ insurance needs. If you’re operating a service-based business like a consulting firm, securing professional indemnity insurance can help protect your business in the event that a client experiences injury or financial loss. Similarly, investing in workplace health and safety can also only safeguard your business by reducing the likelihood of injuries and the WorkCover claims that accompany incidents on-site.
In other words, you’re not just paying for peace of mind. These essential expenses provide tangible benefits for both entrepreneurs and their employees, and ensure that your business operates smoothly and sustainably.
2. Keep your company records neat and orderly
Bookkeeping is a challenge for all budding entrepreneurs, and is perhaps one of the more gruelling aspects of setting up your own business. Thankfully, it is actually a lot simpler than it looks, and keeping your company’s financial records organised can
If you’re struggling to decipher your cash flow statements and other financial records, then why not consider taking a short accounting class to hone these vital business management skills? You may also opt to learn on the job by working with an accountant or business consultant for expert insights into how best you can manage your company books moving forward.
Tech-savvy entrepreneurs may even choose to use accounting software to simplify the bookkeeping process. Just make sure that you’re still keeping track of any physical receipts. Having a dedicated folder for each quarter or fiscal year can help easily keep your expense records in order.
3. Be thorough when filing business tax returns
Speaking of keeping track of your expenses, the end of every financial year comes with a major benefit for business owners. What is this benefit exactly? The opportunity to claim tax deductions for all the eligible business expenses you’ve made throughout that given financial year.
Business owners are usually able to claim back any costs associated with their daily operations, as well as the purchase price of any products or services that were expressly purchased for their business. This means that your office rent can actually be claimed back on your tax return, as well as the costs of any computers and office equipment like printers.
You can even claim depreciation on any property, plant, or equipment (or ‘PPE’). To do so, however, you will need to put together a depreciation schedule for these assets based on their original value and their usable lifespan. You can develop a depreciation schedule for PPE with your business accountant or tax specialist.
Your business may also be eligible to receive tax concessions, depending on the size of your business or even on the industry or market that you’re operating within. There are business tax concessions available for small businesses as well as for special professionals, these being creative professionals like artists, musicians, or athletes.
If you have any questions about the tax deductions or concessions you may be eligible for, it’s worth conducting some independent research and consulting with your financial advisor for more information on all the federal taxation regulations and requirements that you’ll need to be aware of.
4. Use your business credit card wisely
Getting a credit card for your business undoubtedly comes with a plethora of benefits, ranging from streamlining and segmenting company spending and earning business rewards. But as is the case with any credit card, irresponsible use can see your company finances going south very quickly. For this reason, it’s imperative that you establish strict guidelines for the use of company credit cards and communicate those guidelines to your employees, alongside following them yourself.
This isn’t to say that you should avoid getting a business credit card altogether. After all, the ability to use credit for business expenses provides business owners with a level of freedom that can make all the difference in the earliest days of your business operations. That and using a business credit card can help introduce young entrepreneurs to the ins and outs of financial management. Just practice caution when using your company credit card yourself, and providing any cards to your employees.
5. Research business assets before you buy them
Although you can claim the purchase of products or services for your business back on your business tax return, you still have to foot these expenses yourself across the financial year. That’s why spend-savvy entrepreneurs often weigh up the pros and cons that accompany each prospective business expense before pulling the trigger.
You should assess how likely you are to experience a return on your investment (ROI) when looking to make any business purchase. Doing so can really be just as easy as shopping online as a consumer. After all, businesses do indeed become consumers themselves when they’re looking to buy B2B products or services.
Looking up reviews of products or services online can provide entrepreneurs with some helpful insights into the benefits behind each of the assets they’re looking to acquire. Be sure to consider these testimonials alongside provided descriptions of the products and services in question, and how well they relate to your own business operations. If the cost of the product or service outweighs its potential to generate a ROI, then it may not be worth accruing this business asset right now. It can, however, be a potential investment for your future.
6. Expand conscientiously
Speaking of the future, it’s important to keep in mind that the longevity of your business is never guaranteed. Even if your company is performing well, the economic landscape can change in a matter of days, so entrepreneurs really cannot afford to overstep when it comes to spending for the future. Because the future is never a certainty.
In other words, entrepreneurs should avoid making business expenses before those assets are even required. Things like overhead costs, additional employee salaries, and other growth-oriented business expenses should ideally only be made when they’re guaranteed to be of value to your expanding business. Making these expenses before you have space or need for them can potentially place your enterprise in an unstable position if any unforeseen circumstances hit your profit margins.
Conscientious growth strategising also extends to diversifying your product range. You should ideally never order new products from suppliers without first conducting market research and determining whether there is a demand (or could be a demand) for those new goods. The last thing you want is to end up with a warehouse full of stock that you can’t shift.
All things considered, you should find that handling your business finances will grow easier and easier with every passing financial year. Especially if you’re keeping these money management tips in mind. So long as you maintain a sensible and rational approach to your business spending and growth strategising, there’s no reason why your enterprise can’t become a strong player in your market niche.
