Whether you are just starting your business or are years into running your business, managing the financials is a crucial part of setting your business up for success. According to SCORE, a staggering 82% of small businesses fail because of cash flow challenges. Usually, these cash flow challenges stem from not having a proper business financial management system in place. Without a system or small business financial checklist in place, some things will inevitably slip through the cracks.
A proper financial management system can be the differentiating factor in creating a profitable and growing business. This small business financial checklist will help you optimize your business financials to mitigate risk, remain compliant, and make informed decisions.
Small Business Financial Checklist
1.) Budgeting and Forecasting
It is important to create a detailed business budget with expected income and expenses like a budget you would deploy for your personal finances. Based on this budget, you can forecast whether your business is currently running at a sustainable level. This will also help you anticipate your business cash flow and whether your expenses are too high for the level of revenue your business generates.
Just as your personal budget needs constant revision, it is important to continuously check in on your business budget and adjust accordingly. One of the most important factors of financial management is awareness and a budget or cash flow plan is a great place to start.
2.) Accounting, Bookkeeping, and Record-Keeping
While bookkeeping, accounting, and record-keeping are not the fun parts of running a business, this is hands down the most essential part of any small business financial checklist. Without a handle on your true business numbers (revenue, expenses, profit, assets, liabilities, etc.) it is impossible to plan ahead or make informed decisions for your business.
It is highly recommended to utilize a bookkeeping software, like QuickBooks, to house all of these transactions, receipts, and any other record-keeping that is necessary for your business. More importantly, maintaining accurate records by reconciling bank and credit card statements each month is non-negotiable. If you need assistance with managing your account, it is recommended that you hire a CPA professional.
3.) Tax Compliance
Do you understand your tax obligations as a small business owner? If not, then this is an area that you certainly want to outsource to a CPA professional to assist with. You need to understand your tax obligations at the federal, state, and local levels. In addition, you need to plan for quarterly estimated tax payments.
Due to the number of tax deadlines and constant changes in tax laws, this is one area that you do not want to neglect as a small business owner. Remember that it is easier to pay your taxes on time and plan ahead than to pay back taxes plus penalties and interest.
4.) Invoicing and Receiving Payments
Revenue is the lifeline of your business. Without a proper invoicing and payment collection process, your business is susceptible to late or even missed payments. Make sure that your invoicing software and process are as seamless as possible. Therefore, you should follow up on overdue payments as quickly as possible. Send invoices immediately after completing a purchase or service. Late or missed payments can also lead to cash flow problems in your business if you are planning for upcoming expenses.
5.) Regular Financial Statement and Insurance Review
You should regularly review your financial statements and insurance coverage. Whether you meet with a professional to review these items or you review these items yourself for business planning, this is an overlooked step in the small business financial checklist. Your business will constantly evolve, demanding regularly reviewing these items to make strategic business decisions. In addition, as your business grows, you will likely need to expand your insurance coverage or liability protection.
6.) Keep Business and Personal Separate
Far too many business owners commingle their business and personal expenses and assets. Beyond the legal downside, this can muddy the water when it comes time for an audit or if you need to provide financial statements for business financing or personal loans. When personal expenses or assets are mixed into your business financials, it can give you a false idea of your true business numbers; therefore, the rest of the items on this small business financial checklist would no longer work. If you need to take income from your business for your personal expenses, make sure that you take a distribution or pay yourself from the business first.
Final Thoughts
Does your business currently have a financial checklist or system in place? If not, then now is the time to start implementing this small business financial checklist. Your business financials are the powerhouse of every decision you make for your business. Therefore, it is essential that you continuously educate yourself on the best financial management practices and tools.
Are you ready to partner with someone to get a handle on your business finances? If so, book a Free Consultation with us to see if we are the right fit for you and your business.
Disclosures
None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
