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4 Things Small Businesses Must Include in Their Budgets

Budgeting is to business as oxygen is to life: Without it, you die. The reason budgeting is vital to the health of a small business is that it is your GPS device for telling you where you are supposed to go and where you are actually heading. You use the budget to track business expenses, cash on hand, revenue needed and received, and other items to know whether your business is succeeding. The differences between your projected and actual budget numbers are your early warning system when things start to go wrong — or your confirmation that you are on the right track. Those differences are also a call to address problems by changing what you are doing.

Bottom line, your budget tells you how much money you have, how much you must earn and how much money you will have to spend. Importantly, it also tells you how much you might need to borrow to plug any cash shortfalls and to finance your growth. To know these things, you should include in your budget the items listed below.

Required Budget Items

Your budget might have dozens of line items, but they can all be organized into four groups of items that every budget must track: Sales, costs, profits and cash flows.

Sales and Other Revenues

These figures are the foundation of your budget. You can’t spend money unless you make it, and you don’t want to overestimate how much you’ll make by donning rose-colored glasses. Your estimates should be conservative but realistic — if they turn out to be too conservative, well, that’s a good thing. On the other hand, bloated estimates could leave your business floating belly up.

Estimating your revenues is hardest if you are just starting up your business, because you don’t have any prior-year data. That’s why you did extensive research by talking to other owners in your same field, undertaking market research, and relying on your knowledge from previous jobs.

Be sure to include, if appropriate, estimates for sales allowances and returns, which you subtract from gross sales to calculate net sales.

Total Costs and Expenses

To make money, you must spend money– those are your costs and expenses. You should categorize your costs by type:

  1. Fixed costs: These are costs that remain the same independent of your sales numbers. They include rent, insurance, property taxes, leased furniture and so forth. While these costs are called fixed, they are not carved in granite. “Fixed” just means that it will take a while (up to a year and maybe longer) to change these costs.
  2. Variable costs: These are costs that vary directly with sales volume. They include the costs of merchandise, raw materials, labor, utilities, freight, inventory and alike.
  3. Semi-variable costs: These are costs that can slowly vary with the volume of business. For instance, they include the costs of salaries, marketing, communications and various elements of overhead.

Profits

Profits, or net income, are revenues minus all expenses. Ultimately, your business won’t succeed unless it can generate profits. Your budget should include estimated  interest and income tax expenses when projecting profits. If your budget tells you that it will take years before you might begin making profits, you should re-evaluate your business model and see if you can operate until the profits begin rolling in.

Projected Cash Flows

Lack of profits can slowly poison your business. Lack of cash can stab it in the heart. Your cash flows revolve around collections and disbursements. The timing of both will reveal whether your cash inflows and outflows align. To some extent, you can try to accelerate collections and delay disbursements when revenues fall short or unexpected expenses arise. Your budget will indicate when you might have to inject more cash into your business, either by contributing additional capital or taking out a loan. If the latter is required, contact us at IOU Financial for a quick working capital loan on easy terms and convenient daily repayments.

Budget Templates

You don’t have to build your budget from scratch. We recommend our Business Budget Smart Sheet, which will help you analyze your spending patterns, streamline areas of overspending, gauge the cash flow impact of fixed and variable costs, and much more.

5 Keys to Qualifying for a Small Business Loan

Are you looking to secure a loan to grow your business? The numbers aren’t exactly encouraging when it comes to approval rates. Alternative lenders approve around 56 percent of small business loans, while traditional banks (who have less experience with non-collateralized loans) only approve around 27 percent.

Despite these somewhat disheartening statistics, there are several steps you can take to strengthen your application and make the best case for your business.

Keep in mind that lenders are essentially risk managers. When they review your application, they’re looking at the amount of risk involved when it comes to your ability to repay the loan. Follow these five steps to minimize the risk your business represents and improve your chances of approval.

Get Cash Flow Under Control

In the eyes of a lender, cash flow is king. The strength (or weakness) of your business’s cash flow is one of the main factors lenders consider when deciding whether or not to approve your loan.

Ideally, lenders are looking for a history of positive cash flow — when more money is coming in than going out. They want to see that you have enough money to cover all of your monthly expenses, with enough left over to comfortably make a hypothetical loan payment. Dips into the negative are a red flag that indicate risk.

Depending on the lender, anywhere from 90 days to 24 months of your cash flow history will end up under a microscope. It pays to get serious about cash flow management now so you can build up a history that lenders are comfortable with. Intuitive online tools can help you get a handle on your cash flow, and simplify analysis with visuals like charts and graphs.

Check Your Credit

Always check both your personal and business credit before you apply for a loan, and fix any errors that may be dragging down your score. Depending on the lender and the type of loan you’re requesting, one or both reports may be pulled as part of the loan approval process.

Your business credit will likely be taken into account if you’re applying for an SBA loan, or a loan from a traditional bank. If your business is new and has yet to build up business credit, your personal credit will often be taken into account, along with that of other majority stakeholders. In lieu of business credit, banks often judge your ability to repay the loan based on your personal score.

Not only will your credit scores affect your chances of getting approved for a loan, they can impact your interest rate should you get approved. If either your business or personal credit score is low (below 600 for personal credit), take steps to improve it before you apply for a loan.

If your credit is less than stellar and you don’t have the luxury of time to improve your score, you still have options. Alternative lenders are generally more lenient when it comes to credit scores, and often weigh cash flow more heavily when making their lending decision.

Know What to Ask For

Asking for either too much or too little can hurt your chances of getting approved for a loan, depending on the type of lender you’re working with.

Need a loan that’s less than $500,000? Traditional banks may not be your best bet. Historically, they tend to lend higher amounts — and have less experience dealing with loans that may not be backed by collateral.

Alternative lenders, on the other hand, are more likely to lend small amounts, and the application process can be much faster and easier. The key, of course, is to show these lenders that you can repay the loan (see number 5). To increase your chances of approval with these lenders, only ask for as much as you can comfortably pay back.

Know Why You’re Asking

Would you let a friend borrow $10,000 without knowing what it’s for? The same goes for lenders. A surprising number of applicants fail to tell lenders exactly how they plan to use the loan. Always define how you’ll put the capital you’re requesting to work to grow your business.

A convincing business plan is a great opportunity to remove any doubts a lender may have about your ability to repay the loan. Laying out a plan for the funds you’re asking for will go a long way to boost a lender’s confidence in your business.

Prove You Can Pay it Back

This common sense step goes right back to your all-important cash flow. When a lender scrutinizes your financials, what they’re really looking at is your ability to repay the loan you’re requesting. If you ask for an amount without showing exactly how you plan to pay it back, your application will likely land in the rejection pile.

Cash flow projections will go a long way to show a lender exactly how you’ll cover those loan payments. Fortunately, showing lenders where your business is headed doesn’t have to be difficult. Those same online tools that helped you analyze your past and current cash flow can help you create a future projection that you can hand over with your application to improve your chances of getting approved.

Guest Post: About the Author

Eddie Davis – As VP of Business Development at FINSYNC, Eddie has the great pleasure of introducing a world-class financial platform to partners ranging from financial institutions to accounting, advisory, payment and others parties interested in facilitating better business through automation and analytics innovation.

 

Streamlining Your Bookkeeping Process: Tools for Small Business

Whether you’ve been running your small business for years or are just opening up shop, efficient operations are the key to business success. When it comes to bookkeeping, it’s vital you run a smooth operation that gives you timely, reliable results. Bookkeeping tasks includes setting up accounts, entering transaction data, generating reports and preparing tax returns. It is the key part of your accounting system, including invoicing, bill payment, banking, inventory management and payroll. We’ve assembled here a short prescription for streamlining your bookkeeping process and have included a list of bookkeeping tools to boost your efficiency.

Five Keys to Efficient Bookkeeping

Even minor improvements can have a major impact on your business’ efficiency. Here are five:

  1. Establish or review your system:

    If you are just now organizing your business, you will need to have a detailed bookkeeping system in place from the very start. It starts with basic tasks, such as entering your receivables and payables as soon as you can — don’t let invoices or checks pile up on a desk, as it’s all too easy for something to fall through the cracks. Review your chart of accounts to ensure its properly set up and capturing all the information you need. Establish training materials in case you change bookkeepers, as this will save much time should the need arise.

  2. Maintain your pace:

    As we just touched upon, you should never fall behind on your bookkeeping. Even a delay of a few days can snowball into bigger problems. Errors often occur when you have to play catch-up. For example, your inventory system might fail to reflect orders placed if you haven’t yet entered the data into the system. It’s wise to have at least one “backup” bookkeeper who can step in when the primary one is away.

  3. Contract with a CPA:

    You probably don’t need a full-time CPA on staff, but that shouldn’t stop you from hiring one as a part-time consultant. CPAs can ensure your books are being kept correctly. You’ll probably have the CPA prepare your tax returns and answer any questions that come up. And in a pinch, your CPA can temporarily maintain your books if you need to find a new bookkeeper.

  4. Keep receipts:

    It’s such a cliché, but nonetheless true. If you don’t keep, organize, and record your receipts, your business will likely slow down as you search for purchase information from weeks or months before. Consider digitizing each receipt, and in any event, set up a filing system that ensures you can find a receipt when you need it.

  5. Use the best tools:

    It goes without saying that, in 2019, very few businesses are run using a paper-based accounting system. Since everyone automates, it makes sense to choose the systems and tools that have impressed the experts and other users. Don’t worry, you don’t have to pay thousands to get a basic accounting package. In fact, some good ones are free! Keep reading to see some expert recommendations.

Tools for Efficient Bookkeeping

The most valuable business tool is your accounting system. If you are a small company, consider getting a modular system with separate packages for basic bookkeeping, invoicing, inventory, payroll and so forth. Here are some noteworthy systems to consider:

  1. Wave:

    This is a top-rated free accounting system with more than 1.5 million users around the world. It’s a cloud-based system accessible anywhere you can establish an internet connection. It has impressive functionality, including invoicing, receipt management and banking. The only cost is a processing fee for online payments.

  2. Sage Accounting:

    Perfect for self-employed business owners who need a simple system that can be upgraded as your business grows. Prices start as low as $10/month.

  3. FreshBooks:

    A powerful accounting system that integrates most accounting features and interfaces with popular CRM and customer service apps. Prices start at $19.95 per month.

  4. Others:

    Many other accounting systems also perform well, including QuickBooks Online, Xero, Sage 300 Cloud and Sighted. If you need a payroll package, consider WagePoint, Gusto and SurePayroll. For tracking time and expenses, look at TSheets, Expensify and Neat.

Take the time to get your bookkeeping right from the start and you’ll save countless hours on error correction and rework. Your business will save money and you’ll have one less thing to worry about.

Are You Overpaying Your Business Expenses?

Running a small business is a costly undertaking in terms of time, effort and money. Unfortunately, too many businesses spend too much on their expenses. This eats into your working capital unnecessarily, possibly crimping your flexibility and your ability to take advantage of opportunities as they appear. Let’s look at some expenses for which many owners overpay.

Credit card processing:

As your business grows, so does your credit card volume. Have you asked for a quantity discount on your credit card processing fees? This is an extremely competitive market — shop around and you might find much better deals.

Design instead of content:

Your website is a tremendous lead generator. A problem surfaces when owners lavish too much money on design without paying enough attention to content. Your search results will improve if you populate your website with timely, authoritative content. While fancy design is fine, it won’t improve your Page Rank, and it can be expensive to create and maintain. Spend that money instead on quality writing and search engine optimization.

Oversized office:

Rent is expensive. Are you paying for space you don’t really need? Have you filled your office with expensive furniture and equipment? Many businesses can function in smaller spaces or even in a home office. The latter is a great option because it gives you a tax deduction without additional expense, eliminates your commute time (saving money on gasoline), and perhaps reduces your wardrobe costs.

Inefficient employees:

You might spend more on labor than any other expense. Inefficient employees are costly because you are not getting your money’s worth and you might even overstaff to compensate for some bad apples. There are ways to quantify how much an employee is returning to the business. Good employees should return 5 to 10 times what you pay them. If your employees are underperforming, replace them with better ones (even if they cost more) or use contractors instead.

Unproductive advertising:

Do you know your marketing return on investment (ROI)? If not, you don’t have a handle on how your marketing efforts are performing. Many businesses spend a lot of advertising dollars on Google and Facebook. These media sites can provide extensive information about your marketing ROI, but it goes to waste if you don’t use it.

Using paper:

OK, its 2019. Aren’t you ashamed you still haven’t gone paperless? If you had invested in a paperless office, you’d be saving a small fortune on printing and photocopying costs. Plus, don’t you want to save the trees?

Unnecessary travel:

Some transactions require in-person interaction. But does that really pertain to your business? Consider the costs of travel, hotel, meals and entertainment. Chances are you aren’t getting a good return on these expenses. Your time might be better spent conducting your business on Skype, and you’ll save a fortune.

Living the louche life:

You are a business owner, not a superhero. If you burn the candle at both ends, you’ll get burnt. Guard your health by avoiding too many nights entertaining customers, vendors and employees. Your tab will be substantial, and your health might suffer. Sure, you can probably charge off your entertainment expenses, but you may pay in other ways.

Failure to grab opportunities:

In the penny-wise and pound-foolish department, false economies can cost you in the long run. For instance, you might be offered inventory or raw materials at a discount, but you don’t make the purchase because you don’t want to borrow the funds you need. This behavior can stymie growth. The lesson is to use borrowing intelligently. If you don’t, you can be certain your competitors will.

These are just a few of the many ways you can cut waste and increase efficiency. Should you need to beef up your working capital, contact us at IOU Financial for business loans that are easy to get and easy to repay.

Small Business Tax Deductions You Should Know About

2019 continues the new tax regime passed two years ago that proved so friendly to business. The corporate tax rate now tops out at 21 percent. While that’s great for reducing your tax bill, it also means that deductions are worth less than they used to. Nonetheless, deductions help you save money and might make the difference between an overall profit and loss.

Qualified Business Income (QBI)

You can deduct up to 20 percent of your QBI from a U.S. business that operates as something other than a C Corporation. It also works for the self-employed, trusts and estates. Wage income and C Corp income do not benefit from this deduction. The deduction has certain other conditions:

  • Maximum income: Joint filers $315,000, others $157,500. Deductions above these thresholds may be limited.
  • Limit: Lesser of (20 percent QBI + 20 percent REIT dividends + 20 percent publicly traded partnership income), or (20 percent of taxable income minus net capital gains)

Bonus Depreciation

It’s back! We’re talking about 100 percent bonus depreciation that allows you to deduct the entire cost of qualifying assets with useful lifetimes up to 20 years. In addition, the cap on expensing business assets instead of depreciating them is $1 million, phasing out dollar for dollar once you place assets worth more than $2.5M into service. The universe of depreciable assets is wider, and includes lodging furnishings (refrigerators, stoves and beds), HVAC equipment, roofs, and security and alarm systems. They’ve cut farm equipment depreciation periods from seven to five years.

Business Vehicles

Bonus depreciation on business vehicles obtained after September 27, 2017 and put into service in 2018 is capped at $18,000 in year one, $16,000 in year two, $9,600 in year three, and $5,670 thereafter. If you buy a heavy pickup truck or SUV for business, you can qualify for up to 100 percent deduction in year one.

Entertainment Expenses

These generally are no longer available. But you can still deduct holiday parties. You can deduct up to 50 percent of your employees’ meals while traveling on business. The 50 percent deduction on client business meals appears to be intact, but double-check with your tax professional.

Commuter Benefits

Employers can no longer deduct transportation benefits for employees. This includes mass transit passes and parking. However, employers can deduct up to $20/month to subsidize employees who ride their bicycles to work. Alas, these bike riders will be taxed on the benefit. Employees can set aside up to $260 a month in pre-tax money to cover vanpools, mass transit passes and parking.

Net Operating Loss (NOL)

You can offset up to 80 percent of taxable income with NOL in future years. You can carry forward NOL offset indefinitely, rather than just 20 years under the old tax law. You can no longer carry back NOL.

Family Paid-Leave Credit

For 2018 and 2019, you get a tax credit for workers on paid medical or family leave. The credit amount equals 12.5 percent of the wages paid during the leave. That credit is larger when the employers pay workers on leave more than half of their normal wages. There are many strings attached to this credit, so check with your tax professional.

Cash Method of Accounting

If you are a C Corporation, you can use the cash method of accounting if your average gross receipts over the previous three years was less than $25 million. The cap used to be $5 million. This also applies to LLCs and partnerships owned by a C Corporation.

The Best News

The best news is that business loan interest is still deductible! IOU Financial will lend your business up to $500k and you can deduct every penny of interest. So why wait? Contact us today!

Basic Financial Advice for Small Business Owners

Being a small business owner has lots of very difficult challenges that need to be met and overcome. Managing your finances is one of those many challenges that will no doubt be a substantial consideration for those hoping to maximize profits in a small business. Fortunately, there are many ways that you can keep your finances in order.

Keep Track of Your Finances

Organization is the key to keeping your financial situation in order and up to date. You will need to keep up with all of your receipts and invoicing to ensure that when taxes come or even a budget check, that you have an accurate number of how much you have spent and have left. You will also need to keep track of all of your loans and debts you may acquire.

Have Separate Accounts for Your Personal and Business Expenses

You do not want to mix your business and personal expenses. It is best for you to have separate accounts for each. Unless absolutely necessary, do not take money out of your personal accounts in order to “help pay” extra bills. The company should not spend more than it has made without the ability to pay it back through payments.

Be Frugal

Considering the advice given so far, we need to look at the other side of things. There will be things that you will have to spend a lot of money on for your business. Your business will not generate a profit unless you invest some money in it. However, there are several ways that you can do this wisely.

One example you consider is buying used equipment to start off. You can also eliminate unnecessary spending by looking over costs that are not absolutely necessary for the immediate growth of the business.

Additionally, if you feel like you are spending too much money on your office, then you should consider moving to another space or working out of home until you have enough money to fund the kind of office you are looking for.

Hire a Certified Public Accountant

A Certified Public Accountant can help you manage your business finances. They will also be able to tell you about the tax laws and how they apply to your business, which is extremely important, considering just how much rules can change from businesses from state to state in the US.

Furthermore, a CPA can also assist as a tax advisor who can give you professional advice to help you save money in the long term. You may be eligible for a number of tax advantages as a small business owner and a CPA can give you the best advice on how to make the most of that opportunity.

Make Sure That You are Insured

It is estimated that 1 in 12 small businesses will have to close their doors due to the injury or illness of their employees. That is why it is important to have disability insurance. You will also need to have personal life insurance. If you are unsure about the type of insurance that you need, you should speak with an insurance agent. On the off chance something goes wrong, it is good to make sure your financial future does not hang in the balance.

Surround Yourself with Experts

One of the reasons that many business owners fail is because they do not have the right people in their corner. You will need to have a network of people who can support you and give you the valuable advice needed to run and keep up a business.

In addition to an accountant, you will also need a tax advisor, lawyer, and just find ways to mingle with other business owners or investors at conferences that allow you to meet people who have been through your situation and have better insight than you might.

Pay Yourself First

When many business owners get paid, they invest all of their money into their business. They take care of their business expenses and buy new things to help the business grow without first making sure their own personal dues are met. It is important to make sure that when the money comes in, you pay yourself first. You should be saving 10 to 20 percent of your income and make sure you are getting what you need to make a living while running the business.

In summary, it can be very difficult running a successful business. Staying ahead of finances can be one of the most important parts of building a company that will succeed and grow continually. Tools such as Quicken can help you personally keep your finances in order so you always know how much you have in the bank and how much you can spend. This is not just important in the business world, but your personal life as well.

Guest Post: About the Author

Hi, I’m Austin Winder, a Public Relations Specialist and contributing author for Uppercut Box. I live in Memphis, TN and graduated with a business and marketing degree from the University of Memphis.

Tax Season Prep: Five Steps to Get You Ready Now

According to Benjamin Franklin, there are only two certainties in life: death and taxes. Although tax season is still a few months away, it’s advantageous that business owners start preparing for it now. There are certain steps that need to be taken to be able to report the right amount to the IRS and make sure no mistakes are made on your taxes.

Collect Business Records

We’ve all seen movies where frustrated business owner bring a box of receipts to their accountant come tax time. Don’t let this be you—a good rule of thumb for any business owner is to have a systematic way of collecting business records for tax time. If you get in the practice of careful filing of your documents, you will not need to scramble in the spring and spend your time looking for records or frantically calling vendors to ask for receipts or invoices.

An electronic system where you can keep track of all business-related earnings and expenses will make it simple to determine your overall income and deductions you may be eligible for. Plus, this will foolproof your filing system and allow you to access information from anywhere, anytime. Certain programs, such as Quicken and QuickBooks allow you to download your financial information straight unto your tax return.

H&R Block provides a useful checklist of all expenses that will determine your taxable income.

Separate Business and Personal

One of the most common mistakes that small business owners make is failing to separate their business and personal expenses. It’s vital to utilize business checking accounts and credit cards to clearly understand what your business expenses and earnings are to report the correct taxable income amount and determine what deductions you may be eligible for.

If you fail to do this throughout the year, you will spend days trying to determine what amounts were used for your company and what was made for yourself.

Save Receipts

Although it’s not something anyone likes to think about, any business has the chance of being audited. To protect your company, make sure to keep all business-related receipts. The good news is that there are several receipt apps, such as Shoeboxed, which allow you to scan receipts and keep their digital copies. Plus, the apps can be integrated with certain accounting software, making the tax preparation process quick and seamless.

Review Payroll

Before submitting your tax records, review your payroll information with a specialist to verify that everything was calculated correctly and legally. Payroll mistakes can be costly; 40% of businesses pay over $800 to the IRS simply for payroll errors.

Know Your Deadlines

Federal taxes are not the only taxes businesses are responsible for. There are also local city taxes, self-employment taxes, property taxes and payroll taxes, all with their own stipulations, forms and deadlines.

Research these deadlines and note them in your calendar so that you are not penalized for late filings.

If you are anticipating a large payment to the IRS this year, or need funds to invest in getting your business ready for tax time, consider a small business loan from IOU Financial. You may be eligible to borrow up to $500,000 in a quick turnaround of just two business days. Click here to learn more.

How to Make Business Financing Part of Your 2019 Growth Plan

You might occasionally encounter a business owner who has a dim view of debt. That’s unfortunate, because debt, if you manage it properly, can help you grow your business. Here are several ways your business will benefit from the prudent use of debt:

Accelerate growth:

You can use loan proceeds to buy new equipment/facilities, hire more skilled labor and/or purchase additional inventory. This gives you growing room without drawing down your retained earnings. Naturally, you should have a detailed plan that lays out how you’ll deploy the loan proceeds to achieve the desired results. Failing to plan your finances can leave you in a hole when it comes time to service your debt.

Retain full ownership:

You might want to expand your business and are deciding whether to use debt, equity or a mix of both. Remember that bringing on equity investors gives you new “partners” who’s ideas might be different from yours. By borrowing rather than issuing stock, you remain fully in charge and do not have to share profits.

Tax benefits:

You can deduct you loan interest from your business taxes. As you know, every dollar in business is important, so the tax benefits you receive from borrowing are a significant success factor.

Build your credit:

When you pay your loan back on time (or faster), you likely will increase your credit score and boost your credit limit. This comes in handy as you expand your business, because future loans will be easier to access, and you’ll probably get a lower interest rate and/or higher spending limit. Be sure to check your credit reports and scores so that you can correct mistakes.

Avoid asset sales:

If you find you don’t have sufficient funds to complete your growth plan, you might be tempted to sell off your receivables or inventory. However, asset sales have several problems that reduce their desirability. For instance, your customers might not like being billed by a new entity, and this may cause them to question your viability. Furthermore, the haircut you take on asset sales often exceeds the interest you’ll pay on a loan. Why risk doing permanent damage to your business through asset sales when you can take out a short-term loan instead?

Smooth out seasonality:

Seasonal sales variability shouldn’t stop you from expanding your business. Using debt allows you to smooth out the effects of seasonality and keep your growth plans on track. To that end, make sure you borrow from a lender that doesn’t charge prepayment penalties. This allows you to pay off your loan sooner than anticipated without incurring extra charges.

Financing your ideas:

It takes cash, and often lots of it, to pay for the R&D costs associated with a new product or service. You can obtain cash via debt and plow it into your latest research, both from the operational and marketing viewpoints. Using debt instead of equity helps you maintain your trade secrets when they are most vulnerable – in the development stage. Equity investors might require you to reveal valuable information that can fuel the work of competitors.

Cost of capital:

Debt often has a lower cost of capital than does equity. Equity investors not only require a chunk of the profits, but also might require managerial control, a required rate of return and dividends. Debt is simply priced and avoids some of the costs associated with equity financing.

In summary, financing your business’ growth through the prudent use of debt is a winning formula for long-term success. IOU Financial can arrange a business loan of up to $300,000 quickly and with minimum hassle. If you are interested in growing your business, contact us today.

7 Smart Bookkeeping Tips Every Small Business Can’t Live Without

For small business owners, bookkeeping serves as their personal scorecard. Numbers show your success and failure and give a quantifiable shape to your business results

In a small business benefit, your future is on the line. You need to have a good overview of all the expenses and revenue. Perfect bookkeeping can save you a lot of time, money, and nerves.

To help you establish an effective bookkeeping strategy, we’ve assembled this 7-tip list. If you like assessing the numbers and want to keep crucial business matters in your own hands, bookkeeping is the way out. Let’s explore more.

Never mix personal and business finances

For an up-and-coming brand manager or CEO, it may be tempting to achieve as much as possible in as little time as possible.

The over-dynamic outlook could lead to severe financial consequences. In a lot of cases, company heads will use company money for personal expenses and vice versa. Doing so will only cause additional chaos.

When your business is only starting, spending a lot of money is an attractive thought. To prevent tax-related headaches, issue a business credit card along with a separate business account. Taking care of this takes mere minutes and allows you to earn your company a proper credit rating.

“One might find it surprising that a lot of small businesses and startups fail because of improper financial allocation,” explains Josh McCarty, a marketing and economics writer at Brilliantassignment.co.uk. “Separate your finances because mistakes will happen once your business grows.”

Make use of automation

Bookkeeping was once considered a difficult and time-consuming activity. Accountants and bookkeepers had to do everything manually, but a lot has changed in recent years. With the development of AI technology and automated software, bookkeeping has never been easier. There are no more tedious instances of manually creating spreadsheets.

Bookkeeping software makes our lives easier. For one, the data you need is stored in the cloud. Unlike physical storage, cloud storage is safe from any compromising.

No matter the conditions or situation, your data will be stored safely. In addition to this initial security feature, small businesses should immediately connect their banking accounts to bookkeeping software.

By establishing this connection, you will ensure that your books are up to date and that there is no need for last minute checks.

Do regular check-ups

Most bookkeepers and companies keep track of their reports and records on a quarterly basis. A tip that will make your life easier is to check your reports on a weekly basis. The interval here will give you enough time to grow your business, but you’ll also be able to identify any changes in your revenue.

Having a clear overview of your transactions and the overall financial state is a business advantage you deserve to have.

With each new product launch or a promotion, you can see how good the move was by looking at the reports. By analyzing reports from a certain period, you can see if a move was successful or not. If it was, you can repeat it and invest more money or stop implementing it if it was a failure.

Use tracking software to monitor your employees’ hours

Running a small business can face you against some hardships. If you have a dedicated team of employees, tracking their hours might be somewhat difficult manually.

Without knowing exactly how much has someone worked, you risk budgets deficits, imprecise payments and other spending that you don’t need. To prevent this from happening, have your entire small business use time tracking software.

Employees will also find the change refreshing. With time tracking software, they will know exactly how much they’re being owed and when they have vacation time and what was their sick time.

Bookkeeping will be much easier, and your small business will grow exponentially. Integrate the tracking software and the time tracking software for ultimate efficiency and swiftness.

Always track business expenses

Brand growth is something everyone wants to feel, but not to experience. Why is this the case? When small businesses grow, there is another echelon of responsibilities that you have to take over.

Business expenses are just one of them. Even though you might feel good about having a bigger budget, you will find it annoying to file tax reports. Overspending is often a case, and precisely because of that, you need to track your business expenses.

When traveling, make sure you keep every receipt and categorize it accordingly. There are several apps that allow you to scan the receipts and store them on the cloud.

The move might seem simple, but it’s a bookkeeping tip that every small business can’t survive without. By tracking your business expenses, managing your budget and filing tax reports will be much easier.

Don’t be afraid to ask for help

At the beginning of every company’s life, you can most certainly handle all numbers by using off-the-shelf software. However, once you start experiencing growth, you might feel overwhelmed by the sheer number of tasks needed.

Keeping track of everything is important, but many companies tend to shut down because they’re hesitant to hire a professional.

Although it may seem like hiring a professional bookkeeper is unnecessary spending, it’s a massive benefit that can save you a whole fortune. Letting a professional handle your bookkeeping will free up valuable time you can use to focus on making your business grow. Associating yourself with a professional is an investment for the future.

Have your deadlines and tax obligations in a visible place

Bookkeeping is both monitoring the growth of your company and working from deadline to deadline. From tax reports to building business credit, it’s always beneficial.

Tax reports have to be filed, but even the most important deadlines can be missed if you’re overwhelmed. Thus, before undertaking anything new, you should write down all upcoming deadlines and obligations.

Having visible dates will allow you to run your small business without unnecessary stress. Additionally, missing deadlines and ignoring obligations will only bring you problems with the law.

The IRS has many useful tools for calibrating your calendar. If you’re more of an old-fashioned person, you can write them down on a piece of paper. Knowing your deadlines allows you to plan accordingly and increase revenue.

To conclude

Every small business relies on impeccable bookkeeping. Implementing these tips will require minimal effort and bring you maximal results. Remember to always be organized, prepared, and aware of upcoming deadlines. With recent developments in technology, you will rely on software to do the heavy lifting. Just by implementing these tips, you will ensure a fast and beneficial period of business growth.

Guest Post: About the Author

Scott Mathews is a professional content writer in such topics as bookkeeping, work productivity and marketing. Scott`s the biggest passion is blogging and travelling. He regularly takes part in different career growth conferences and contributes his posts to different  websites. Contact him on Facebook and Twitter.

Navigating Business Credit: What it is and How to Establish it

Small businesses play no small role in the U.S. economy. According to the U.S. Small Business Administration (SBA), there are 29.6 million small businesses in the United States, which account for 99.9% of all the nation’s businesses.

Small businesses clearly make up the backbone of the US economy. However, many small business owners remain perplexed by the concept of business credit and how it works. More often than not, small business owners take on personal loans and use personal credit cards to fund their businesses, which can lead to financial and organizational headaches. This article aims to do three things:

  • Help small business owners understand the elusive concept of business credit
  • Highlight the factors that affect business credit scores
  • Assist them in building business credit

What Is Business Credit?

Business credit is a line of credit offered to a business that the business can use to pay unexpected expenses, or expected operating expenses when there is a lack of available cash.

Your business credit scoresare represented by numbers that signify whether your business is suitable for loaning money to or doing business with.

There are three primary credit bureaus (Experian, Dun & Bradstreet, and Equifax) that uniquely calculate business credit scores. Each has a different scoring algorithm. Experian and Dun & Bradstreet’s credit scores both range from 0 to 100, while the Equifax scoring scale ranges from 101 to 816.

Similarly to personal credit, those issuing credit to you will rely on your business credit scores in their decision making. The higher your business’ credit scores, the more likely you’ll be able to secure larger credit limits as well as more rewards and benefits.

What Factors Affect Business Credit Scores?

While your business credit scores vary depending on the specific credit bureau’s algorithm, a few general factors that underlie these scores are:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Trends over time
  • Public record frequency and dollar amount
  • Delinquencies such as liens or bankruptcy
  • Credit utilization (the percentage of your total business credit that is being used)
  • Demographics such as years on file, Standard Industrial Classification codes and business size

5 Tips To Build Business Credit

Creating business credit is not something that happens automatically. It requires multiple steps on the part of the business owner. Building business credit will not only benefit the business’ credit scores, but open more credit card and loan options for the business. These funds allow the business to keep growing.

In the instance that you have never incorporated your business, or you are starting a small business from scratch, this quick guide will direct you down the path of building your business credit.

1. Incorporate Your Business

The first step on the road to building business credit is to separate yourself from your business through incorporation. Through incorporation, your business will become a distinct legal entity from your person. The U.S. Small Business Administration provides an in-depth guide to launching your business, including incorporation, which would be recommended for all budding entrepreneurs and small business owners.

2. Obtain an Employer Identification Number (EIN) from the IRS

An EIN identifies your business for credit and tax purposes. It’s essential to get an EIN number for an SBA loan. In most cases, it is necessary to have one to open business bank accounts. An EIN allows business owners to separate their social security numbers from their businesses’ credit profiles.

3. Register with Dun & Bradstreet

When a business applies for business credit, lenders and suppliers commonly perform a credit check through Dun & Bradstreet. Register and set up a company profile under Dun & Bradstreet’s database in order to start establishing credit. Dun & Bradstreet will issue a nine-digit DUNS number that is universally used to identify businesses.

4. Open a Checking and Savings Account for Your Business

Open both a checking and savings account in your business’ name. This is done using your recently provided EIN and DUNS numbers. By doing this, you’ll separate your personal and business finances.

A business savings account is not mandatory, but is an intelligent move for any small business owner. A business savings account can assist when an unexpected cost arises and it can also be used as security for taking out a small business loan.

5. Obtain a Business Credit Card & Responsibly Manage Your Finances

Business credit cards are key to building business credit. It’s recommended that these credit cards should be commercial in nature and used for business expenses. Business owners should put any business credit accounts in the name of the business using their EIN and DUNS numbers.

It should be noted that not all business credit cards are created equal. Different business cards provide different types of rewards and benefits. Business owners should do their research and find business credit cards that aligns with the goals of their businesses.

While obvious, it is imperative to maintain excellent financial behavior to build business credit. Make sure to keep your credit card utilization low, pay all bills on time and in-full, and use a variety of credit.

Conclusion

Building strong business credit is not something that’s automatic or instantaneous. It requires business owners to be proactive and behave with financial responsibility. Time and excellent financial behavior are necessary ingredients in establishing high business credit scores for your small business. By understanding the core business credit concepts and following these tips, your business credit scores should be flourishing in no time.

Guest Post: About the Author

Courteney Reed is dedicated to empowering people to make smart financial decisions. As a financial industry analyst, she is driven to provide the most current and highest quality information available.