5 Easy Ways To Organize Your Small Business Finances

Credit scores are often viewed as the number one barrier preventing small businesses from obtaining financing. But disorganized finances can also be to blame. In today’s tough economic environment especially, lenders want to make sure that your business is viable and will be able to repay the debt. Organized and up-to-date finances are essential if you want to increase your chances of getting approved.

Here are 5 easy ways to organize your business finances.

1. Create an easy filing system

“We think ignorance is bliss, but is it really filled with headaches and fear,” says Belinda Rosenblum, CPA, financial strategist for business owners and founder of OwnYourMoney.com. “Avoiding your papers and bills, or even a huge ‘pile to file’, is a costly recipe for disaster,” she says. “Not opening invoices often results in time delays or even late fees. Opening them up and then letting them pile up without filing anything can make you feel disorganized and out of control.

Rosenblum suggests that you schedule a short block of time each week – “for example, a Money Monday or a Finance Friday”. Then “set the timer on your phone (start with 30 minutes) and focus on a certain pile of documents.” For a simple filing system, she recommends filing folders for each month of the year. “Then organize the documents according to invoice dates for consistency. You’ll need a few other records for things like taxes, charitable contributions, and health insurance documents, ”she adds.

2. Stop mixing personal and business finances

If you don’t have a business bank account, don’t put off this task. (If you worry about the cost of a separate account, you can get a free business current account.) Make sure you use your business account only to pay for business expenses. If you need funds to pay for personal expenses, pay yourself via payroll and / or owner’s draft, then use your personal funds to pay for personal expenses.

While you’re at it, consider using a dedicated credit card for your business expenses. A small business credit card can be a great choice. Some business credit cards are not included in personal credit unless you default. And most have great rewards.

“Even if you don’t have a business credit card, designate one of your personal cards for business expenses,” advises founder Sandy Smith, Elevate influencer conference. “This will make it easier to track and manage these costs. If this credit card also rewards you with miles, cash back, or any other freebie for using the card, this is an added benefit that you can use for yourself as well.

The mix of personal and business funds in your business account can compromise the legal protection offered by your business structure. Tax time is more complicated when you don’t use separate accounts. And using personal accounts for your business can certainly make it harder to get financing, as many lenders want to verify business income.

3. Plan your expenses

You should also make sure to set aside funds to pay annual bills. If you don’t plan for these expenses, you may run out of money. Sylvia Inks, Business and Financial Coach at SMI Financial Coaching, LLC and author of Small Business Financing Book for the Busy Entrepreneur suggests that you calculate the total financial obligations for the annual invoices and divide by twelve. “Then set up automatic savings to transfer that average monthly amount from your operating expense bank account to your long-term savings bank account,” she recommends. “As the annual bills come due, you will have the money available to pay them. ”

It is essential to anticipate the financial needs of your business and then plan for them. Many business owners outsource to finance freelancers to help with some of the more complicated schedules. Software tools and websites can also help.

4. Automate it

Set up automatic payment for invoices so you don’t forget to pay them. You will save money on late fees and interest charges. As an added bonus, this strategy can help you develop and protect your business credit, as business credit reports can include payments just a day late.

Consider using your credit card to make these payments and you can earn rewards. Just make sure you pay on time to avoid interest charges.

5. Adapt your financial reports

Financial reports can also play a crucial role in approving funding. Traditional lenders may want to see income statements, balance sheets or other financial statements for example. Others can analyze the company’s income.

But don’t create them just for lenders, use them to gain valuable insight into your business finances. Consider creating your own “custom report” in your accounting system, suggests Rosenblum. “You can choose preferences once, like not showing pennies or comparing to previous periods, and then just choose that same report to run every month,” she explains. “Each month, instead of wondering where all the money went, you’ll be more likely to run the report and spend your time analyzing the numbers and making money by making moves. “

This article was originally written on July 7, 2020 and updated on July 30, 2020.

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