Becoming an entrepreneur is a great achievement. But once you become a business owner, you will find out that you are required to do several things that you hadn’t even dreamed of before. These include knowing how to apply for a business loan, keeping your books of accounts, and managing your financial situation.
Despite whatever romantic motivation you may have for your business, at the end of the day, it is an economic enterprise whose objective is to make money.
If you are not making profits, it will become more of a hobby than a properly running business. Tracking and managing your financial situation means all the difference between success and failure of the business itself.
In the article below, we will discuss a few ways in which you may keep track of the financial situation of your business in a proper manner.
Know-How Much You Are Making
It is very important to know how profitable your business actually is. You should be able to calculate your business income on a yearly, monthly, weekly, and even daily basis.
If you have more than one income stream, you should be able to calculate incomes of all those streams individually. There are many bookkeeping software available in the market that will allow you to keep track of all your accounts on a daily basis. The easy-to-use software will segregate your income and expenses, and allow you to arrive at the income figure at the end of each day.
The most important benefit of tracking your finances is that it allows you to analyze the income fluctuations in a much better way along with its reasons.
Know-How Much You Are Spending
There are many expenses that are imperative for running a business successfully and collectively. These are known as ‘cost of doing business.’
The good thing is that some of these expenses are tax-deductible. At the end of the year, you can deduct these expenses from your total taxable income.
Other than the cost of doing business, you may have some other expenses that may be saved or curtailed.
When you keep track of your business expenses, you are able to identify all such expenses that are not imperative to your business.
Controlling your expenses means increasing your profits. Keeping track of your expenses allow you to cut unnecessary spending.
Open and Maintain a Separate Bank Account
One of the most important ways of keeping track of your business finances is to open a separate bank account. Your personal bank account and business account must never be the same.
First of all, if you are using the same account for both, you will eventually get confused regarding which expense belonged to whom.
Second, there are taxation requirements for both yourself and your business. If you are not maintaining separate accounts, you will not be able to figure out which entries belonged to your business. Consequently, it will become extremely difficult to segregate data at the time of filing income tax returns.
Once you have opened a separate bank account for the business, deposit all business receipts in that account, and pay all expenses from the same account.
At the end of the month, the bank will provide you with a monthly statement. You will be able to reconcile your data with this statement allowing you to not only keep your finance in check but also manage your cash flows accordingly.
Prepare a Budget
Budgeting is a great method for keeping track of your business finances. Many startups think that budgeting is a futile exercise that only serves to waste their time, and do not offer any kind of real value to the business.
They are wrong!
The budget serves as a tool that controls your business expenses. It is a blueprint that enables business owners to remain informed about the financial situation of their business, and make timely and informed decisions when it comes to expansion.
Without a realistic budget, your business becomes a ship that is drifting into the sea without a mast.
The Final Word
Business entities are supposed to be profitable. Otherwise, they will not be able to sustain themselves in the long run.
In order to gauge the true profitability of a business, it is imperative that you track your financial situation regularly whether your business is making a profit, or simply eating away your capital. For more details click walletadviser.com
Some of the tools for tracking the financial situation of business are mentioned above. But they are not all. As you start your business and begin working on its day-to-day operations, you will come to realize the many facets of your businesses’ finance.
The key is to record every business-related income and expense properly so that you are able to review a consolidated report as and when you need it.