Small Business Financial Health Check: Assessing and Improving Your Finances KEY TAKEAWAYS
For a small business owner, assessing and improving their company’s finances can be a tough job. Separation between your personal and corporate finances is key to your company’s financial stability. An enterprise owner must understand not to pour all their finances into their venture. Knowing when to hire a professional finance manager is also vital for your company’s survival. Having your own business can be tough. Managing your own company’s finances can be even tougher. Understanding how to manage your small company’s funds to ensure that they stay stable and healthy is a challenge on its own.
There are platforms out there aimed at assisting small enterprises with their finances, including this site that you can take a look at.
You can also read the below tips to manage your small company’s cash flow and understand how to assess and improve them, too.
Create a Separation Between your Personal Finances and Those of your Business Be sure to open a corporate account and not only use your personal account for business-related activities.
A big reason for this is so that those two cash flows can be separated. You want to be able to easily see your company’s expenses and income so that you can see if you are operating at a profit or a loss. This will allow you to manage your finances better.
Creating this separation will also allow you to deduct business-related expenses when filling out your tax form. The IRS allows for certain deductions, but you need to be able to prove that the expense was for your enterprise.
If you have a business trip, for example, and you pay for it on your personal account, it is not a corporate expense, even if you know that you went for business.
Hence, a company checking account is a necessity.
DID YOU KNOW? More than 50% of small businesses fail within the first year of their inception.
Pay Yourself a Salary It is often the case with small enterprises that they do not pay themselves a salary. They often pump all their money into the business and don’t ever issue themselves a monthly salary. This might seem necessary and even heroic to start with, but it is detrimental to the business owner.
A business owner must remember their normal monthly expenses and not just push all their money into the venture. They also need to think about savings. By not earning a monthly salary, savings are often forgotten. This is very significant if the business experiences low times or cannot continue.
It is also very vital to your creditworthiness. If you want to buy a car or a house for your personal use in the future, the bank will take your personal credit score into account. If you have not been earning in that account for a long time and there are no savings, your credit score will be very low, and your application for a loan will most likely be denied.
3 Vital Documents to Help Your Business Ensure that you are following the correct accounting procedures with your business. Below are three very important statements and sheets that need to be filled out. With these, you will be able to see your cash flow, profit, and loss at a glance.
Cash Flow Statement Profit and Loss Statement Balance Sheet Subtitle: How to analyze the financial health of a company
Consider Hiring a Finance Professional Leading on from the above documents that are vital to your company, it is also necessary that you know some form of accounting or tax practice to accurately manage your company’s finances. If you do not, then a great idea is to hire an accountant or a tax strategist for your enterprise.
This will free up more time on your side so that you can focus on the areas that you are better at doing, and it will ensure that your finances are being taken care of in accordance with the law in your country.
Final Thoughts It is clear that your business’s finances are a vital component of your company.
It is important to ensure that you are operating your company in the most financial-savvy way possible.
The tips above are aimed at helping you take a financial health check on your company and make sure you are working in a sustainable way.
Frequently Asked Questions Ans: A financial health check is a thorough examination of your personal finances and financial situation. The goal is to help you better understand how you manage your money, to see if you are on track to meet any financial goals you have set – and, if not, what changes need to be made.
Ans: It is a current, comprehensive, and all-encompassing assessment of the key components that comprise a business.
Ans:
Growth— Do your sales and profits rise or fall year after year? Profitability— Does your company make enough money in comparison to other similar businesses?Liquidity— Will the company be able to meet its short-term obligations?Leverage— Is the company using financing to operate and grow?