Many entrepreneurs are experiencing a pause in their business as the global pandemic continues to affect “business as usual.” Smart business owners are using this time to market and refine their business plan. If you’re a newer entrepreneur or have recently changed your plan, you might also benefit from using this downtime to get your business finances in order. While this will look different for everyone, getting your finances on track both personally and for your business is crucial for your success. Here are some tips that will help you get started.
Schedule Money Meetings
Scheduling time on your calendar to regularly look at your finances is crucial to your business. These meetings can include business partners, accountants, or others involved in your finances or they can just be reminders for you to take care of financial tasks. I recommend scheduling at least weekly 30-minute meetings in the beginning. Once you have your finances on track, you can bump this to once every other week or even once a month.
During your meeting, you should review your balance sheet, income statement, cash flow statement, and budget. Don’t have these documents? We’ll get to that in a minute. The key to these meetings is to make them mandatory. If you have to reschedule for any reason, set another date within a day or two and don’t be tempted to skip them.
Develop a Business Budget
If you’re ready to transform your business into a money-making machine, you have to start with the basics. Just like you need a personal budget to keep spending in check, you also need one for your business. A budget doesn’t have to be overwhelming. A simple budget can include a time period – I suggest starting with three-month chunks of time – the revenue you expect to receive during that time, your expenses, and a buffer to account for things like delayed payments from clients or unexpected expenses. You can start fleshing out your budget to be more comprehensive down the road, but these basics are a good place to start.
Separate Business and Personal Finances
If you’re new to the business world, you may still be mingling your personal and professional finances. This is a big no-no for multiple reasons and you need to separate them now. Set up two bank accounts and check with your bank to see if they offer any special programs for small businesses. Make sure all your business expenditures and deposits go through your business account and your personal finances go through your other account. This will help you when tax time rolls around and will also make budgeting much easier.
Plan for Taxes
If you’ve come from a corporate background or if you’ve never been in business before, it’s easy to get behind on taxes. Working with an accountant who specializes in small businesses is always a good idea as they can help you keep on track. You should also create a savings account and start saving immediately to make sure you can cover them.
Develop a Savings Plan
Your business should serve you and not the other way around. To make sure your business provides you with the future you want, you need to prioritize saving for retirement. Set up a ROTH or a SEP IRA and speak with a fiduciary about other monetary moves you can make now to take full advantage of investment opportunities.
Have an Invoice System
If you have a lot of outstanding invoices or if some of your clients don’t pay their bills promptly, you’re losing out on liquidity. You need to have an invoice system that is consistent. Send out invoices immediately after work is completed or prior to when they are due in the case of recurring bills. Have a follow-up system where you contact those who have not paid on time and add interest or issue penalties. These simple steps can put more working capital in the bank and ensure you don’t miss out on money due.
Create an Emergency Plan
One of the biggest mistakes that entrepreneurs make is not planning for the lean times. In no time in recent history has this been a bigger lesson than it is right now. If you created an emergency fund prior to the pandemic, it may be keeping you afloat. If you didn’t, you could be feeling the pinch. If you have the capital now, start putting money into an emergency fund. If you’re just trying to get by until income starts flowing again, make a resolution to create this fund as soon as you have the income.
Though you may not be able to conduct and grow your business as you normally would at this time, it doesn’t mean you should stop planning altogether. Take advantage of the downtime and make sure your business finances are solid so you can hit the ground running once the economy is back on its feet.