It started with an idea, and now that it’s grown into something bigger, you’re finally on your way to becoming a business mogul. Along with the empowerment of being your own boss comes the responsibility of money management and bookkeeping. You could hire someone for the task, but it’s important to familiarize yourself with basic money-managing skills to keep your business running smoothly. Below is a step-by-step guide to setting up a basic system to help you stay on top of the numbers game.
Open a Separate Banking Account
After legally registering your business, start by opening a business chequing account. This will help you stay organized, and it prevents you from having to separate your grocery bills from your business expenses. Also consider a separate business credit card, so you can begin building credit for your business. Doing your homework is important too; book appointments with different banks you’re considering (check what documents you need to bring), ask questions, and compare fee structures before deciding on the best one for your business.
Yes, this means everything, from client meetings at the café, to office supplies, to the business trip you have scheduled next month. Find a system that will track your expenses effectively and make sure to keep record of legal documents (business licenses, permits, etc.). Start with a simple Excel spreadsheet, or a service like ShoeBoxed, which makes it simple to scan and organize your expenses. Also make sure to keep detailed records of each expense. For example, if you went to dinner with a client, note who attended, as well as the purpose of the outing. (Be wary of claiming personal activities as business expenses – the taxman won’t be too happy about it.) This habit will also help you to start proper bookkeeping.
Set Up a Balance Sheet
A balance sheet evaluates the overall financial health of your business. In a nutshell, it’s your assets (what you own), your liabilities (how much you owe), and equity (the value of your business). Once you’ve learned to set up a balance sheet, it’s a great way to understand and identify trends. It’s also a crucial document in providing financial reports to potential lenders such as banks and investors.
Figure Out How You’re Paying, and How You’re Getting Paid
Offering a credit card option can make a significant change to your business, as many clients prefer that method. There are many other payment options worth considering; offering more than one or two choices will often increase sales.
It’s also important to set up a payroll system. You might start out as a one-person show, but you may have hired someone to design your website or create a logo. Do your research so you know what taxes to withhold, etc., then establish whether the individual is an independent contractor or an employee. Set up your system and decide on a payroll schedule. It’s important to track how much you’re paying each person as well, particularly independent contractors and freelancers.
Determine Profit Percentage
Create reports that show your profit. The most basic profit calculation, the gross profit, can be generated by subtracting total costs and expenses from your gross income to see your bottom-line profit. This is what you worked for, money-wise. Then multiply your gross profit by 100 to find your gross profit margin percentage. This is essential to see if your business is meeting your goals. It’s also useful when making plans to increase your profits in the future.
Money isn’t everything in a business but being knowledgeable about your finances is essential to helping your business grow, and it will enable you to become the successful entrepreneur you set out to be.
Helen Jacob | Contributing Writer