How Entrepreneurs Can Manage Their Business Finances With Success When starting or growing your business, it is important to build on your financial literacy skills to ensure that you have a solid understanding of your business numbers.
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Entrepreneurship can be an enriching journey, and with the right skills, it can also be financially rewarding. With that journey comes more responsibility and hard work that, hopefully, pays off in the end. Smart entrepreneurs do what they can to ensure the success of their business.
Related: Why Hard Work Is the Most Important Trait a Successful Entrepreneur Should Have
While working towards the success of their businesses, entrepreneurs need to be mindful of both business finances and personal finances. Many entrepreneurs need to rely on personal financing to back their businesses, especially startup business, so financial management needs to be a top priority. As Matt D'Angelo wrote for Business News Daily, "The most important step for any business owner is to educate themselves. By understanding the basic skills needed to run a small business — like doing simple accounting tasks, applying for a loan or drafting financial statements — business owners can create a stable financial future. In addition to education, staying organized is a major component of sound money management."
Unfortunately, many entrepreneurs tend to overlook the need to manage their finances and know their numbers. When you have this skill mastered, you will be more likely to save money and keep your business profits.
Here are some tips for managing your finances within your business:
1. Keep your personal and business bank accounts separate
Mixing these bank accounts is a big mistake that entrepreneurs often make. Not only does this get confusing for record-keeping, but it is problematic should you ever be audited. It is essential to hold a separate bank account for your business finances. It gives you a clear understanding of the cash available for the business and provides clear boundaries between the business and personal finances.
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2. Ensure your books are kept current and accurate
Having timely and reliable financial reports requires your bookkeeping to promptly close the month. If you outsource this responsibility, ensure your bookkeeper is knowledgeable and that you can run your financial reports with confidence within a week. All too often, I see business owners rely on bookkeepers, only to find out at year-end that the bookkeeper was not qualified and made costly mistakes in their business. When searching for a good bookkeeper, I suggest you rely on referrals that other entrepreneurs have been using for over a year and are happy with.
3. Know your business numbers
Do not put all your faith in an accountant or bookkeeper to tell you how your business is doing. You need to understand the financial health of your business at all times. Yes, you can outsource the bookkeeping, but ensure you receive valuable financial advice from your accountant and make informed financial decisions for you your business. With the proper management of your business finances, you will increase the profitability of your business.
4. Work with tax professionals who can help you save money
You may have questions about incorporating your business versus self-employment. The right financial professionals can help you make great decisions. Every business owner has a unique situation, so having a single method for all business owners does not work. It is wise to invest in a tax accountant who can show you how to take advantage of the tax opportunities available to you with your business and your personal taxes.
Related: The IRS Increases 2021 Contribution Limits to SEP IRAs and Solo 401(k)s for Business Owners
These are just a few tips on how to manage your finances. The more involved you dive into your business and personal finances, the more money-making and savings tips you will find. The surest way to build wealth for yourself and secure your financial future is to build upon financial literacy skills.
