Managing business finance can be tricky. While it may feel overwhelming, not keeping a watchful eye on this aspect can jeopardize your venture.
The truth is, every business has certain risks that could potentially paralyze it financially. These risks may come from various sources, such as the depreciation of physical assets, cybersecurity flaws, data breach, equipment theft, and so on.
As a business owner, you need to know where your company’s financial value lies and take robust measures to protect these elements. This will not only help your business grow, but also ride out any storm it encounters.
With this in mind, here are a few business finance management tips that will empower you to keep your company secure and on the right track.
- Choose the Right Business Structure
The right business structure will help you support your company financially by making tax time less stressful, while also providing legal protection. You can choose from among the following structures:
A) Sole Proprietorship
This is the simplest business structure as it is owned and operated by a single individual. Contract workers and freelancers commonly go for this option. It is a pass-through tax structure, which means the business doesn’t have to file a tax return. All tax documents pass through the business owner’s personal tax return.
B) Limited Liability Company (LLC)
Many small businesses opt for this structure as it is relatively inexpensive and simple to set up. This structure also offers personal liability protection, which means that the business owner cannot necessarily be held personally liable for any debt incurred by the business. Hence, it protects your personal assets from lawsuits and creditors.
Like sole proprietorship, LLCs are pass-through entities, and may offer additional tax deductions for the net income earned by the business. However, while LLCs can be beneficial on the federal level, they can invite additional tax at the state level. It would be best to consult a local financial advisor to know if this structure is suitable for your business.
Corporations may be a complicated option, but they offer the highest level of legal separation between a business and its owner(s). It’s best suited to established enterprises with several full-time employees.
- Keep Business and Personal Finance Separate
Once you start a business, you should open a separate banking and credit card account for it. This can be especially beneficial during tax season.
Business owners are usually eligible for numerous deductions like office expenses, business meals and travel, utilities and supplies, contract labor, among others. But to legally claim these deductions, you’ll need to establish that these expenses have been paid for by the business, and not its owner. If the IRS decides to audit you, they should be able to find an unhindered paper trail leading to your business account(s).
Having separate accounts will also help you manage your business debt, saving your personal assets from the clutches of creditors. Combining your personal and business finances can make you personally liable if a customer or vendor files a lawsuit against your company and vice versa.
- Buy Insurance
Whether you’re a small business or a large enterprise, having insurance is imperative to protect your company from unexpected events and curtail operational risks. Most importantly, it will protect your assets, thereby securing you financially.
For optimal results, get the following insurance policies:
- Professional liability: Offers protection if someone sues you
- Property insurance: Protects your property and inventory from damage due to calamities
- General liability insurance: Covers medical bills in case someone sustains injuries on your property. It may also provide protection against copyright infringement, libel, and slander.
- Cybersecurity insurance: Protects your company in case of loss of sensitive data
- Workers’ compensation insurance: Offers protection to your business and staff if they get harmed at the workplace
A local financial advisor will be in the best position to help you understand the insurance policies your business can benefit from. So, if you’re based out of Gainesville, Florida, availing of financial advising in Gainesville can prove to be highly advantageous.
- Keep a Keen Eye on Your Operating Expenses
Reviewing and self-auditing your business finances will help you steer clear of unexpected business costs, inconsistencies, and financial fraud. This should ideally be done every month to catch any discrepancy in the early stages and nip it in the bud. Some elements you should track include:
- Fees related to credit cards or invoice services
- Utility service charges
- Stocks and shares purchases
- Payroll and employee expenses (travel and petty cash)
- Be Prepared for Emergencies
If the COVID-19 pandemic has taught us anything, it’s that emergencies can strike at any time, and only those who’re prepared for it can survive the storm.
While it isn’t possible to predict and plan for every worst-case scenario, you should certainly build an emergency fund so you have enough money on standby when your business needs it the most.
Make sure to put aside at least three to six months’ worth of expenses to be used in emergency situations, like a machinery breakdown or an economic downturn. While this money won’t solve all your problems, it will give you the time you need to put out the fires and get your business back on its feet.
Dealing with financial risks prudently is a big part of running a business successfully. The truth is, as a business evolves, so do its goals. It, therefore, makes sense for your business finances to evolve accordingly. The financial approach and planning will depend on several factors, so you may have to enlist professional help to find the most suitable solutions for your specific needs.
If you aren’t already protecting your business finances, the time to start is now. Remember, it’s never too late to secure your financial interest. With the right team of finance professionals backing you, your business will not only thrive, but also become capable of enduring almost any crisis.