Tips for Managing Small Business Finance

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    21 Dec 2022

    Tips for Managing Small Business Finance

          As a small business owner, there is always something important that necessitates the utmost attention, time, and effort. Managing finances is one of them and perhaps the first one to be procrastinated for another day. Despite understanding the importance of maintaining accurate financial records, a small business owner may not have the time or knowledge to correctly track & handle company finances. This is where financial mismanagement begins and quickly becomes overwhelming. Study shows that most businesses fail in their initial stage due to a lack of structured financial management.     From administering cash flow to planning funds, everything is crucial for a business to run smoothly. Whether you are in a starting phase or considering expansion, you need to manage your firm’s income and expense flow efficiently. Smart, small business accounting practices are essential for managing your daily operations and planning for long-term growth while avoiding costly errors that attract penalties.   The following tips will help you to organize and manage your finances.    Register your business   The first step towards managing finances is to register a business. Start by choosing a suitable structure that determines ownership, business liability, and tax implications.  These are the most common business structures in Canada -   
    • Sole proprietorship
    • Corporations
    • LLC
      Next would be finding a suitable name for your venture that can help people find it. The name should precisely represent your venture and the services provided. However, please check whether the decided name is available or not since you can not take an identical name from an existing firm. This could be done by conducting a NUANS name search - a tool from the Government of Canada to search for all registered businesses and trademark names across Canada or a particular province.   Finally, you can register your venture name through the Government of Canada website. Business registration makes the owner legally obligated to open a separate business account, therefore making it the next important step toward managing finances.    Separate business and personal finances   When it comes to maintaining a streamlined operational process, separating your finances from personal is essential. As an owner, merging personal purchases with a business account can lead to difficulty in managing finances. Unlike a sole proprietorship, if the business is registered as a corporation or LLC,  it is identified as a separate legal entity. Ideally, it is a recommended practice to separate business finances from personal ones as it helps to navigate operational expenses, making tax returns and bookkeeping easier. Therefore, to separate business and personal finance in Canada, you must consider opening two different bank accounts.   Types of bank accounts you can consider are -  
    • Chequing Account - It is a transactional account designed for daily transactions, paying bills, and making payments and purchases. With this account, a person can withdraw and deposit money anytime without paying any interest, as it is used to conduct daily transactions and is meant for pertinent use. 
    • Savings Account - This account is ideal for keeping funds for short and long-term business goals since the account earns interest. When required, transfer the funds to the chequing account for use as a direct withdrawal from the savings account attracts withdrawal charges. 
      It may also help to have a business credit card for operational expenses. This further helps in streamlining finances and helps to build business credit. Cash backs, reward points, etc are some additional benefits.   Monitor the business's financial position   Analyzing financial statements can tell more than just numbers, it gives insights into the performance and financial health of a company. Determine and interpret some important calculations to monitor KPIs in liquidity, profitability, solvency, valuation, and growth. Gather a general idea of how well the business is performing by tracking up-to-date cashflows through automated software like Quickbooks.    Determine the business's ability to repay all its creditors and evaluate whether it can withstand any financial downturn. Assess the working capital – the amount of money any organization has to meet future expenses and to run daily business operations. Most importantly, review a snapshot of the company’s market and economic value using some commonly used techniques such as asset valuation, market capitalization, book value, and DCF analysis.   Ensure customers pay on time    It's important to ensure you have a timely payment method with your customers. Failing to do so can put you and your business on the back foot over late transactions. Issue an invoice and send reminders to keep your customers informed of the due amount and date. Mentioning a delay penalty charge may also help ensure timely payments.   Using different modes of payment and digitizing payment methods helps ease the payment process for customers. You can add links and details of online payment platforms such as PayPal, and Net Banking in the mail or invoice to receive payments on a timely basis.   Know day-to-day cost   Keeping a tab on the daily and operational expenses helps identify unnecessary expenses while making operations more efficient, organized, and aligned within budget. Keeping a track of business expenses helps control the avoidable spend and may also help claim deductions at the time of tax filing.   Keep digital receipts instead of paper as they are safe and provide ease of access when required.   Keep accounting records up-to-date   Even small changes in a business’s income or expenses can have a big impact on a profit and loss statement. Keeping track of accounting records can assist companies to prepare accurate financial statements and help monitor progress.    Shift to an automated accounting system for making the daily task of recording transactions efficient and instant. You can forecast revenue, reduce the risk of errors and eliminate unnecessary losses by keeping all records up-to-date with accounting and bookkeeping software. Depending on the scale of business, it is advised to spend an hour or two per week reviewing and reconciling books. This helps in making sound decisions and getting a clear view of your business income and expenditure.    At CJCPA, our professionals manage your finances with our effective bookkeeping and payroll services.   Have a budget for taxes   Set aside the funds you'll need to pay the government during the tax season. Failing to meet the tax deadline due to a shortage of funds can lead to fines and penalties from CRA. Know the dates of some important tax deadlines
    • Personal Tax 
    • Corporate Tax
    • GST/HST
      Organize records to know how much tax you owe and schedule your tax filing day on the calendar so you don’t miss it by any chance. Stay hassle-free by setting up a separate tax account for handling your financial and tax liabilities.   Hire an accounting expert     For a small business owner, it is difficult to manage everything alone. Therefore, it helps to take professional help to look after your business finances. A good accounting expert like CJCPA helps you understand the financial situation, identifies potential financial risks and takes effective steps to solve them.    Final words   Financial management is an integral part of running a business. It encompasses all the actions you need to take in order to ensure that your business runs as smoothly and efficiently as possible. At CJCPA, we deal with accounting and other back office functions which includes bookkeeping, GST/HST/PST, payroll, management consulting, and cloud accounting services, allowing you to focus on business growth and expansion.    Contact Us Now for online bookkeeping and accounting services and allow us to help you scale up your business.  
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