When managing a business, it can be easy to focus on your great ideas for improvement rather than the finances behind the curtain. However, without having a stable budget, none of your dreams will become a reality. Use the following budgeting tips to keep your business’s finances in the green.
Save Money for Taxes
Image via Flickr by 401(K) 2013
As of 2017, the self-employment tax is 15.3 percent of your income as a business. However, that doesn’t account for federal income tax or state taxes, which will also require a chunk of your earnings. Experts estimate that you should save anywhere from 25 to 35 percent of your income in a separate tax savings account to prepare for your quarterly bills. This way, it won’t come as a shock when your accountant demands a check to send to the government.
While you might be tempted to do your taxes yourself, set aside a portion of your budget for a certified tax preparer or CPA. They’ll do a far better job of deciphering tax codes and deductible expenses than you could.
Be Realistic With Profit Projections
It’s great to be enthusiastic about your earning potential. However, you shouldn’t be enthusiastic when it comes to forecasting your earnings. Creating a budget based on your current cash flow is only successful if you have an accurate idea of your cash flow. Overestimating here could leave you unable to pay your expenses.
One way to prevent this is to round up all of your expenses. It’s far better to be safe than sorry and, with these slightly higher expense totals, you’ll have a little cushion room in your budget.
Avoid Taking on Debt
You might be tempted to take on a smallbusiness loan to get your business going, but this is a bad idea. If you’re late on your payments, you’ll sink even deeper into debt and hurt the company’s credit score. Keep in mind that most businesses don’t need a ton of cash to start; the Census Bureau estimates that a startup requires less than $5,000 in cash to get off the ground.
Additionally, try to avoid using credit cards to make purchases. Instead, put all your expenses on a business debit card, as you’ll be more careful with your spending because you’ll be paying straight out of your checking account. You can also use services like Credit Control UK to stay on top of your credit and debt repayment.
Keep Track of Your Invoices
On average, companies spend a total of 36 hours tracking down a single missing payment. In order to make sure you’re getting all of the money owed to you from clients, create invoices to send out. This will help you keep your records straight as well as remind clients that it’s time to pay up. If you need help with this, look into an invoice management service like Kabbage.
With Kabbage, you get the money that clients owe you immediately and then clients pay what they owe to Kabbage when they can. This means you’ll get what’s owed to you right away, while they’ll have six or 12 months to pay it all off.
Managing your businesses financial budget doesn’t have to be a headache. By following these tips, you can create a strategic budget plan that will facilitate your growth in your industry.