While creating a successful business is all about how you manage how your cash comes and goes, the conundrum is in how few companies keep good books. If you fail to manage your money properly, you’re more likely to have to close up shop in just a few years.
The cost of running a business might be in your day to day expenses but also lies in how much time and effort it takes to keep your accounting together.
Here are four ways that this hidden cost of running your business matters.
1. Managing Your Cash Flow
When you’re working on building your small business, you need to have someone to look at how your money flows. If you don’t have someone to keep a proper ledger, you’ll have a confused perspective on what kind of money your company has. Every small business needs a ledger to have a handle on the inflow and the outflow of money.
You need several components in your ledger to keep things together.
First, you need to know how much cash you have on hand for the day. Then, you need to know what kind of money you should anticipate to come in based on sales yet to be paid or processed. Lastly, you need to know how much money you can anticipate going out from automatic debits or any payments that have yet to be debited from your account.
Every sale that you make, all of your expenses, as well as any fees related to banking or processing payments. The costs of running a business might require you to also pay for software and tools for managing your money.
2. Filing Invoices
Your invoices and receipts are the paper trail determining the foundation of your business. If you’re selling a physical product, you’ll be giving out receipts with every sale that you make. You should keep your own copy so that you can add everything up later.
If you provide a service or sell to other vendors, you should have a copy of every invoice. Your invoices could get lost when you send them to the people you provide services to. When they’re lost, it’s more likely that it will take longer for them to pay you.
If you sell a high-end product, you need to ensure that you have a constant running flow of the amount of money you’re spending and receiving. When every invoice gets paid, you need another system for ensuring that you’re on top of the payments.
A computer-based system can help you keep a record of your company’s transactions while also creating a base of electronic receipts. You’ll know how much you could potentially make from month to month, on holidays, or on average from a particular product or service.
3. Watching Expenses
Every business has a series of expenses that are required of them to keep running. Your business is going to have daily expenses from staffing costs, running your electricity, or just having a space that you rent out. When you understand your regular expenses, you know what you need to have on hand to sustain your business.
There’s going to be a different benchmark for every company out there. Once that benchmark is breached, you know that you’re spending more than you can bring in. While you don’t want to be pinching pennies, if you’re not watching your spending, you’re going to end up in trouble.
Spending too much on expenses that you don’t need or services that exceed your business’s capacity, are going to end up driving you to lose money. When you’re thinking about your expenses, also consider how hard it is to get a new client. Finding new clients and winning them over costs lots of time and energy.
IF you’re not spending your money wisely, you’re going to struggle.
4. Preparing Your Taxes
Every year, every business is going to be required to pay taxes on what they’ve earned and what they’ve spent. Preparing taxes as a business is far more complicated than preparing taxes as an individual. You’re going to need to start by reconciling all of your finances in advance to ensure that you have an accurate measurement of the flow of cash.
Then, you’re going to need to keep track of your spending throughout the year. This entails insurance, fees, taxes, and all of your staffing expenses. You even need to keep track of what you spend on office supplies and equipment to ensure that you’re not overpaying on taxes. Deductions can keep your doors open.
While you manage your business, you need to have someone around to make sure you’re paying enough in taxes. If you don’t pay the right amount throughout the year, you’re going to have to make up for it all at the end of the year. Preparing taxes takes time and effort, so expect to have someone on staff regularly or else pay for several hours of work when it comes to time to do taxes.
You’ll need to be very organized if you want to ensure that you’re paying the right amount of taxes all year long. Paying too much is a waste of your money and belies other issues with managing finances.
The Hidden Cost of Running a Business Is In The Books
While you might be on top of your products and promotions, the hidden cost of running a business is all in how you’re managing that money. Making money is easy but so is losing it if you’re not careful.
If you don’t realize how an accountant could make your life easier, check out our guide for tips. AND, if you found this helpful, then SHARE. Pound that button below and share on social media!
Until the next time,