If you’re like many small business owners, you started your company because you had a fantastic vision and a dream of implementing it in your community. However, much of your day-to-day time is spent on management decisions, marketing and those dreaded finances. To streamline your approach, take a critical eye to your small business finances to identify problem areas that many young entrepreneurs miss.
Complete a Break-Even Analysis to Make Concrete Goals
Even with the best business plan in the world, it may be months or years before you begin to cover expenses and turn a profit. The Small Business Association suggests calculating your break-even point, at which your costs equal your revenue, by identifying all of the fixed and variable costs of your business. Fixed costs include rent, salaries, or other amounts that don’t vary with sales volume. Potential variable costs include shipping, manufacturing costs or purchasing inventory. Use rent or salary calculators to determine the specific amount you have to deal with.
Subtracting variable costs from the unit sales price gives you an index of your gross profit per sale. Then divide your fixed costs by the gross profit per sale to find out how much money you need to make to break even. Knowing your break-even point allows you to make specific, actionable goals. Perhaps you can reduce costs by moving to a lower-rent location or changing suppliers. Before you make a business decision, recalculate these numbers to see how the decision affects your bottom line.
Remember the Taxes
As a young entrepreneur, you’ve likely leveraged many of your assets to get your small business off the ground. Even if your business isn’t generating huge profits, you’ll still owe Uncle Sam for taxes. With the complications of estimated tax, self-employment tax and various deductions, it’s smart to hire a tax professional to handle your finances. Being hit with a huge tax bill and arguing that you didn’t realize you needed to pay tax throughout the year is no excuse. Make sure you’ve set aside a portion of your business profits (or personal money, if your company hasn’t begun to turn profits yet) to cover tax payments.
Reinvest Dollars In Your Business
There’s no way around it — you need to spend money to make money. Since you already have fixed and variable expenses, why not recoup a percentage of those expenditures to reinvest in your business? Finding a good business credit card that gives you cash back is a savvy move. For example, a lot of business credit card companies give you points back on every dollar you spend. Decide whether cash rewards or travel miles make most sense for your business model and choose a corporate credit card accordingly.
Put the Cloud to Use
Traditional bookkeeping keeps you tied to your work desk, long after you’d rather be home. By moving your accounting to the cloud with Expensify, you can monitor finances and generate expense reports from anywhere. Expensify automatically imports and categorizes purchases made from your corporate cards. Plus, you can snap a picture of receipts using your smartphone. Expensify will generate an expense for the exact amount shown. When it comes time to generate expense reports, the relevant information is at your fingertips.
Keep Your Personal Accounts Personal
When you’re first starting out, you’re likely investing personal cash in your small business. However, it’s important to reduce personal liability by keeping your corporate and personal finances strictly separate (this may be legally required, depending on your business entity). Set up separate banking accounts, credit cards, and accounting systems. Not only does this help you at tax time, but it allows you to make smarter business decisions by keeping things compartmentalized.
Carlos is a marketing agent from California who handles advertising for several Fortune 500 companies.