Proper management of business finances for small businesses is essential to have smooth operations and build a name in the market. However, as per the bureau of labor statistics, 20% of companies only manage to make it through one year, and 30% of small businesses stay in business until their 10th-year mark. 

Following best accounting practices, having a customized online billing software, tracking time spent on activities, expense tracking, and analyzing business reports can prevent cash flow issues and prevent business failures. Further, these practices will also help you get access to some great insights and boost your business. 

Here are some tips you must use to manage small business finances. 

Tips for managing small business finances 

1. Invest in accounting software for financial services 

Bookkeeping is the process that lets you track all your income and expenses. It is an important aspect of financial management and will help you make informed business decisions. But, unfortunately for small business owners, accounting is not their core skill set. So, you can invest in accounting software for financial services and hire someone/outsource the function. In addition, online billing software will help you cut down on time-consuming processes and make it easier to complete financial statements. 

You can start with the basic version of accounting software and gradually get more features added. You must be wondering that I don’t have too much to do with number crunching? But, does my business still require one? Well, here are some small businesses and solopreneurs that can benefit from accounting software. 

  • Consultants
  • Contractors
  • Designers 
  • Ed-tech startups
  • Digital Marketing Agencies 
  • Financial Services 
  • Freelancers 
  • Hospitals and Clinics
  • Restaurants and Hotels 
  • Law Firms 
  • Photographers
  • Non-profits

2. Develop budgets

The first step to manage your company’s finances is to keep a list of upcoming expenditures and then compare them to actual expenses and revenue. Did you know, 60% of businesses with sound financial health always stick to a budget and keep separate bank accounts for payroll? Thus, it is extremely essential that you develop a budget and stick to it. 

3. Keep accurate records

Recordkeeping is one of the major responsibilities of a small business owner. Accounting software lets you automate the recordkeeping process and store financial records. Thus, making it easy for you to document the time, place, and business purpose of a transaction. Accounting software can also be integrated with time tracking solutions. This will help you invoice your clients in a timely and organized manner and maintain a good cash flow. Here are some records your accounting software for financial services will help you maintain. 

Gross Receipts: Income you received from your business and records, including forms, receipt books, cash register tapes, invoices, and documents.  

Expenses: These include the cost required to run your business. The records include proof of payment, account statements, invoices, and credit card receipts. 

Fixed Assets: These need to be recorded to calculate annual gain or loss. These include purchase and sales invoices, fund transfer proofs, credit card receipts, invoices, and statements. 

Luckily, accounting software for financial services can help you track expenses, manage invoices, keep records in order, and much more. Besides, you can print unlimited bills using this solution and keep multiple copies of records. 

3. Choose an accounting method 

Every small business needs a set of rules for deciding how to report incoming and expenses. Following this will ensure that you have a consistent accounting method for tax purposes. Generally, small businesses with $25 million or less in annual gross receipts choose accrual accounting or cash basis accounting. 

Cash-based accounting is more manageable for small businesses as revenue is recorded when payment is received, and expenses are likewise deducted. At the same time, accrual accounting records sales when services/products are delivered. 

For retail businesses, sales are recorded at the time of purchase, whereas in other industries, it may or not be recorded even months after the sale. Since accrual accounting considers a long-term view of the business, it provides a comprehensive picture of a company’s health. 

4. Keep books in order

It is challenging to have a clear picture of your company’s financial state if your books are not in order. Automating receipts and invoicing is one way to ensure your books are always up to date. Another thing you must do is link your bank accounts with accounting software. 

You can easily download your credit card and bank statements and also import them as CSV (Excel). However, some online billing software offers a plug-in that will pull out information from your bank transactions and statement files. 

You can easily set up these rules in your system and streamline your reconciliation process. Besides, some accounting software offer direct integration with banks. Thus, you can manage all banking tasks without logging into the banking portal. 

5. Optimize accounts payable and invoicing

As a small business, you need to hold on to cash as long as possible. For this, you can take advantage of credit terms from key suppliers. Besides, you will need to pay bills on schedule and pay the vendors that offer discounts for early payments. 

Also, you will need to revamp your invoicing procedure to get on-time payments from customers. This could include running credit checks on potential customers, offering discounts, and even revoking credit terms when necessary. Luckily, accounting software by sending out bills and follow-up reminders to prevent delayed payments. 

6. Separate accounting functions

Small businesses are more likely to have a single person handling all the accounting functions. But, this could lead to accounting fraud. However, you can minimize risks by having simple controls in place. One way is to streamline your approval process and reconcile the bank statements. 

7. Keep an eye on high-cost expenses

For small businesses, labor costs can become unmanageable if suitable measures are not taken. Many small businesses choose to outsource work to freelancers and contractors at an hourly rate to reduce labor expenses. Further, this helps you reduce costs as they may not need 40- hours to complete their work and will also not require benefits. 

Besides, online billing software come with time tracking capabilities. This lets you understand how tasks are costing business, budget better, and find ways to control these expenses. Besides, you will be able to lower inventory costs, turnover ratios and analyze other key metrics.

8. Plan for major investments

When you track your expenses, revenue, and time spent on various business aspects, you will be able to identify the best time for large investments and establish the credit required to cover costs. In addition, business credit cards can help you establish a credit history so that you have better chances of getting finances. These include credit and loans. 

Securing these loans can improve your company’s overall financial health. For example, 45% of businesses with sound financial health can easily get a good line of credit from a bank as compared to 3% of companies with poor or below-average financial health. The icing on the cake? Credit cards offer business rewards and travel rewards. 

Need to Manage your Business Finances?

9. Monitor taxes

One way to manage your companys finance is to make accurate tax estimates. You will also need to keep employment tax records and fill in the forms as per your country’s regulations. 

Luckily, your accounting software for financial services lets you make a tax calendar and include due dates and actions for every month. In addition, you can sign up for email reminders and stay on track with your taxes. 

10. Seek tax guidance 

Did you know of small businesses spent 40+ hours on federal taxes? As a result, small companies choose to hire an accountant to handle their taxes. Besides, you can get more tax benefits when you appoint someone to prepare your business’s tax return. 

11. Ensure inventory data is accurate 

In order to have streamlined finances, you need to have accurate inventory data. Therefore, you will need to calculate the cost of goods sold (COGS) from your income statement and have the inventory value on the balance sheet

Online billing software lets you keep track of inventory and adjust the numbers and sales in real-time. Besides, inventory management solutions not only make it easier to track inventory but make information more accurate. 

12. Use reports to evaluate business performance

Logging expenses and income will help you generate financial statements and reports. Income statements help you determine business profits. Balance sheets show liabilities, shareholders, and assets. A cash flow statement denotes the company’s money, how much it flows in/out, and the remaining cash.

You can also combine balance sheets with cash flow statements to get a better understanding of your finances. Lastly, you will need these three statements to secure financing and funding. 

13. Generate financial projections

Financial projections can help you estimate future income and expenses. As a result, you will be able to analyze if you need financing or need to make capital expenditures. Besides, financial forecasts will help business leaders determine if they need to change their pricing and production plans and estimate cash flow better. 

Besides, it provides information to external stakeholders and secures better loans and funding. Moreover, these forecasts will be useful in creating Pro-forma financial statements that let you stay on the same page with your clients. 

Besides, when you take a step to establish accounting processes, you will increase the likelihood of success. The more often you review your numbers, the better your financial health will be. Not only will it help you capitalize on financial opportunities, but it will also ensure that your company doesn’t get insolvent. 

14. Keep personal and business funds separated

Many small business owners looking to manage financial risk must keep their personal and business funds separate. Having a separate business bank account will protect your personal assets from risks. Besides, it also makes insurance and capital access, tax filing, and capital access much simpler. It will also help insurers, auditors, and lenders analyze the financial position of the business itself. 

15. Track time 

Timely maintenance of finances is as important as keeping your projects in check. Therefore, you must make it a point to check your accounts on a weekly basis. Luckily, accounting software for financial services lets you manage all functions with ease and automate core processes. In this manner, you will no longer need to waste hours crunching numbers and understanding complex accounting functions. 

Also Read: 9 Ways Accounting Software Can Help You Manage and Forecast Business Budget

Wrapping up 

This was all about how accounting and online billing software can help you manage your small business finances and keep things in order. Keeping finances in check will help you take the right steps to expand and scale your business. Besides, when you have a transparent process in place, you will no longer need to worry about your cash flow and accounting needs. You will no longer need to print unlimited bills when you can manage it via a dashboard. 

FAQ’s

Moon Invoice, Xero, Invoice2Go, QuickBooks, and FreshBooks are some of the best online billing software for small businesses. These will help you automate core accounting and billing functions and take care of your finances in a better manner.
Standard rate, single hourly rate, service rates, flat rates, and team member rates are some of the different billing methods. You can easily integrate these methods of billing with your accounting software to streamline invoicing and get access to faster payments.
While billing is the process of generating and issuing invoices, accounts receivable is an account that displays outstanding invoices or money owed to a business in the short- term.