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6 Small Business Finance Basics You Must Understand

Small businesses can fail before they break even. Often, failures emanate from an inability by business owners to properly manage finances. Bookkeeping is the central aspect of a financial breakthrough for most startup businesses. Here are six small business finance basics you must understand.

1. Proper documentation of cash

Cash records are an essential aspect of any business, whether small or large. Make sure to record all the money your company receives as well the expenditure. The process involves having records of all purchase receipts, check reimbursements, and petty cash records.

Keeping up with your business transactions also helps you predict the future of your business based on previous patterns. However, you have to make sure that you separate your expenses from those of your business. For instance, you cannot pay your debt using money from your business.

Tracking your cash transactions can help you predict your best customers, their preferences, and how you can improve business spending patterns. Besides, whenever a business needs funding, lenders require records of all cash transactions for consideration. A business owner should learn how credit score works before considering a loan as a source of financing.

2. Inventory

When recording inventory, ensure you note the stock numbers, dates bought, dates sold, and the buying and selling prices. Recording business inventory helps a business mitigate against risks such as theft from employees, misplacement of stock, or buying more than is required. Any business owner should understand, that holding more stock implies that more cash is tied that could have otherwise been used to handle other projects.

3. Debtors and creditors

Businesses cannot survive without debtors and creditors. However, you should ensure proper management of accounts receivables and payables. Record how much is owed to you by other businesses as well as what your firm owes others. As you record, make sure to have detailed information on the amounts owed, dates, terms of lending, due dates, and the particulars of the debtors or creditors.

4. Employees

Let’s admit it; you cannot run your business alone. At some point, you’ll need to hire employees to help you with the proper management of your business. Therefore, you must record the details of each employee, their salary, and tax forms.

It’s possible to maintain employee data if you have a handful of employees. However, as your business grows and you bring more workers on board, it’s necessary to hire a professional to help with your employee management. Employee details are essential for tax purposes.

5. Keep costs at a minimum

The sole aim of any business is to maximize profits while minimizing costs. Research indicates that most enterprises break even after about five years of operation. Therefore, to ensure your business even gets to five years, you have to keep all costs at the lowest amount possible.

To keep costs low, you have to seek suppliers that offer competitive prices for your business needs. You don’t have to go for popular brands when purchasing items because you’ll pay a higher amount. Many startup firms can offer similar services or products at lower prices.

6. Taxation requirements

Every state has different tax obligations that all businesses need to abide by to have a smooth time with the authorities. Most business owners who don’t adhere to the above guidelines often have a hard time tracing their records while filing for tax. Businesses that have their finances in order with all proper records have an easy time during taxation.

In summary, business finance is a fundamental aspect of any business that wants to succeed in the market. As long as enterprises observe proper bookkeeping, then success is guaranteed. Accounting entails the recording of cash transactions, debtors and creditors, employee management, as well as inventory management.

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