As one of Vancouver’s favourite boutique accounting firms, we know a thing or two about financial management. We also know that bookkeeping can be a tedious process, especially when you’re first starting out. From opening bank accounts to taking out loans, there’s a lot to learn in a short period of time. Whether you’re an absolute beginner or a seasoned pro when it comes to analyzing your small business finances, it’s possible to put your business on the path to financial success by following a few simple steps:
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1. Become financially literate
Educating yourself on your finances can sometimes feel like learning a new language. Before you start financially planning, we suggest you begin building your financial vocabulary. For example, a financial statement breaks everything you need to know about your business down into the following four parts: a cash flow statement, an income statement, a balance sheet, and a statement of shareholders’ equity. Most small business owners are not aware of this when they first begin. However, it’s crucial if you want to know where your money went, where your income came from, and how much money you currently hold. Small business owners who are more aware of the movement of their money are often the more profitable ones.
2. Separate your personal finances from your business finances
To remain compliant with the CRA, it’s important to start separating business expenses from personal expenses as soon as possible. There is often some grey area separating the two; however, the sooner you start, the faster and easier the process will be. In order to do this, you’ll need to open a business bank account, apply for a business credit card, and track any expenses that happen on behalf of the business. Having your money separated will not only save you a lot of confusion, but it will make it easier to track your business’s income and expenses, too.
3. Time is money
Benjamin Franklin couldn’t have been more right when he wrote that in Advice to a Young Tradesmen in 1748. Your time is your money. Although it’s common for new business owners to dedicate an inordinate amount of time to growing their blossoming business, it is absolutely possible to overdo it. Track your hours, if you notice yourself spending too much time working on the business, your business might not be as profitable or reliable as you might think. There are always economic consequences that come with the personal consequences of overworking.
4. Regularly check in on your financial performance
In order for your business to be successful, it’s crucial you regularly analyze your business’s successes and losses. By examining your business’s performance every month or quarter, you’ll be able to assess your business’s overall health and stability. Where are your losses coming from? What can you improve on? You might also notice trends, like if a majority of your income is coming from an area you can grow, or if your business has seasons. Over time, your ability to recognize financial trends will allow you to better predict into the future and strategize your work for optimal profit.
5. Watch your spending
Starting a new business often requires a lot of upfront investments with a delay in profit. To make the process of starting a business more financially comfortable and also more sustainable long-term, we often encourage new business owners to be intentional and tactical with where they spend their money. Where are you making your purchases? Are you buying items wholesale or from boutiques? Where can you cut costs? There will almost always be losses at the beginning, but the sooner you recognize where your money is going, the sooner you can correct yourself and more quickly make a profit.
6. Hire an accounting firm
Not to toot our own horn, but having an accountant makes all of the above a lot easier. Financial management takes time and energy, two things most new business owners lack. The pursuit of starting a new business is large and time consuming. Having an accountant can ease the pressure that naturally comes with starting a new business while setting you up for long term success and less failures along the way.