Running a small business can be extremely rewarding. No boss, more control over your work hours, the joy of seeing your products or services inspire your clients. But business ownership also comes with a few drawbacks, and for many Australian small business owners, it’s the finances that are the hardest to manage.
Taking smart steps to properly manage your finances can stabilise your company while reducing the impact of seasonal fluctuations. Here are four ways you can better manage your small business finances.
1. Keep your personal and business banking accounts separate
Especially at the start of your journey, it’s easy to lump all your finances into one account. But as your business grows, this can complicate matters. Instead, separate your personal and business accounts so you can get a clearer and more organised financial picture. This will ultimately make it easier to manage the business and achieve financial success. Here are some reasons why you should make the change today:
- Improved record-keeping: Easier to track business income and expenses, which can simplify matters at tax time and reduce the risk of errors.
- More credibility: Separate personal and business banking accounts can demonstrate to your customers, suppliers and partners that the business is financially responsible and professional.
- Protects your assets: It can help protect your personal assets in the event that the business is sued or experiences financial hardships.
Having separate business and personal bank accounts can also make it easier for small business owners to access financing. Lenders typically require clear financial records and having a separate business bank account can help them assess your creditworthiness, making the whole loan process more straightforward.
2. Establish an easy to follow filing system for your business finances
Having a good filing system is essential if you want to manage your finances effectively, remain compliant and make informed business decisions. A proper filing system makes it easier to comply with Australian tax law and regulations, while also helping you keep track of your income, expenses and cash flow.
Perhaps most important of all, accurate financial records are crucial to your business planning and forecasting. They will provide valuable insights into your business’ financial performance and help identify any areas for improvement.
3. Use cloud accounting software
You likely already have some form of accounting system in place, even if it’s manual data entry into a physical ledger. But switching over to a digital solution, especially one that is cloud-based, can provide ample benefits:
- Improved accuracy: Accounting software will automate many routine financial tasks that are prone to errors, helping to ensure greater accuracy of your financial records.
- Efficient record-keeping: Makes it easier to keep track of income and expenses, monitor cash flow, manage taxes and BAS, and reconcile bank statements.
- Better visibility: Provides real-time visibility into the financial health of your business, which allows you to make informed decisions and respond to market changes swiftly.
- Time savings: Automating routine financial tasks and having a clear and organised filing system can give you valuable time that would be better spent on other income-generating tasks.
- Planning and forecasting: Provides valuable data and insights that can be used for business planning and forecasting.
4. Don’t let the thought of credit cards and loans scare you
Every small business goes through ups and downs. It’s an unfortunate fact of business life that you will likely deal with seasonal fluctuations and cash flow challenges. Rather than letting these financial burdens overwhelm you, think of them as support tools.
Credit cards can provide a quick fix to financial hardships. If you choose a card with a good rewards system, you can even get a range of benefits from them. However, you will need to pay off your debt quickly or risk incurring an even greater cash burden.
Business loans are much more valuable over the long term. They can provide you with access to the capital you need to cover business costs, fund growth, or invest in new equipment or technology. Loans can also help you invest in new opportunities, such as expanding into new markets, launching new products or hiring additional staff. Rather than a ‘quick fix’, business loans can be used to increase the value of your company.