Spring— a time of renewal, allergies, and…finances? With the changing seasons, take the opportunity to spring clean your business finances.
Year after year, individuals devote some time to spring cleaning their houses. This year, make sure you take some time to clean up your business by learning how to manage your business finances.
How to handle business finances
To spring clean your business finances, you need to have a healthy inflow of cash and know where your profits are going. Here are seven ways to spring clean your business finances:
1. Renegotiate payment terms (loans, insurance, interest)
As a business owner, you are faced with different expenses throughout the course of running your business: loans, insurance policies, rent, etc.
Use your business finance spring cleaning efforts to renegotiate invoice payment terms and conditions with lenders, suppliers, and insurance providers.
Did you take out a loan to open your business? Are you still paying that loan down? Talk to your bank and see if you can set up a different system for paying down the loan.
Look around for other pricing options. You could find cheaper insurance with another company. Maybe there are less expensive types of business insurance out there with better terms and conditions.
Cut out any unnecessary expenses at your business. For example, if you spend $2,000 per month renting a copier that you don’t use, don’t keep spending money on something that’s sitting there collecting dust. Get rid of equipment, subscriptions, and software that you no longer use.
2. Make sure customers pay you
You might sell to a lot of customers without asking for payment upfront. If you find that a customer won’t pay for services, use this time to send a payment reminder.
Maybe you need to reassess your payment policies. When customers make a purchase without paying immediately, make sure they understand your late payment terms. Give them a copy of late payment terms and conditions as soon as they make the purchase. Send invoices with plenty of time before the due date so your customer doesn’t enter late payment territory.
3. Check if your prices are turning a profit
Are your products or services priced too high? Or, are they priced too low? Make sure you know how to price a product just right so you can make a profit. If they are too high, you lose out on potential customers buying from you. And, if they are too low, the result will be an unhealthy bottom line.
This is a good time to reassess your business’s prices. Conduct a market analysis to help you determine prices. See how the market for your niche is doing, and take a look at what your competition charges for similar products/services.
Find your business’s profit margin. Deduct your expenses from your income to determine if you are bringing in enough money to cover the cost to run your business. You can determine how many products you need to sell at what price. That way, you can see how much you need to sell to turn a profit.
You can even survey your customers to get a feel for what they would be willing to pay for products/services.
4. Catch up on your payments
Is your business a culprit of having overdue payments? Take a look at your bills and invoices to make sure you catch up on payments to vendors and lenders. If you are overdue, you could lose credit as being reliable.
Get off to a fresh start this season. If you can’t pay the full sum of what you owe immediately, ask to set up a payment plan. A payment plan lets you pay off your debt over time instead of all at once.
For example, you bought a $3,500 lawnmower for your landscaping company. Instead of paying full price when you receive the invoice, ask to make payments of $250 each month. Keep in mind that you might need to pay interest by setting up a payment plan.
5. Separate personal and professional accounts
When you’re a small business owner, it’s easy to forget to separate personal and professional accounts. But, you must have your finances separated so you can assess how your business is doing.
If you currently have one bank account for both personal and professional funds, use this time to separate them. You should have different checking and savings accounts for your business. And, you need a business credit card.
If your accounts are already separated, make sure you don’t dip into your business funds for your personal life. This can make your records unorganized and make filing small business taxes difficult.
6. Organize paperwork
Spring cleaning is all about organization. Do you know what business records you need to track? Make sure your paperwork isn’t strewn about all over your business. You could end up losing important documents, which are essential in case of an audit.
One way you can organize paperwork is to go digital. Import your business records onto your computer so you have a backup copy in case of emergency. Use filing cabinets to organize your paper files.
You should have accounting records of all your business’s transactions. And, you should store bank statements, legal documents, permits and licenses, and insurance documents.
7. Use new tools to track finances
What better way to kick off the season than investing in some new technology for your business? Investing in software to help track your business’s finances can save you time and headaches. Keeping track of business finances is made easier through software.
Finances for small business can be tricky. Accounting software is a simple way to maintain financial records and track income and expenses. It saves you time from managing your finances by hand. And, you don’t need to hire a professional accountant if you use accounting software to track finances, saving you money. Accounting software is an invaluable option for small business owners when it comes to tracking finances.
You can use cash-basis accounting or accrual accounting software to track your small business’s finances. Doing so will help you stay organized, see a clear picture of how your business is doing, and know how much money you have on hand.
If you want an easy way to track your business’s finances, try Patriot’s online accounting software. Create invoices to send to customers, record payments, and track unpaid invoices. And, get free, U.S.-based support. Try it for free today!
This is not intended as legal advice; for more information, please click here.