7 Tips to Manage Your Business Finances

Business Planning in Houston

1. Separate business and personal finances

Many new small business owners use their personal credit cards to cover business expenses and deposit business revenue into their personal checking accounts. While that might be convenient at first, it can lead to serious complications.

For example, the IRS allows business owners to deduct business-related expenses, such as business travel and supplies. However, you have to provide proper documentation to support those deductions. If the IRS audits your return and you don’t have a clear record showing which transactions were business-related and which were personal, you could lose out on those deductions.

To avoid that headache, open a business bank account. You can usually find one that offers free checks, no monthly maintenance fees and unlimited transactions.

2. Pay yourself a salary

As a small business owner, you may pay yourself last or even forgo a paycheck entirely to conserve cash and put more money back into growing the business. But paying yourself from the beginning — even if it’s just a few hundred dollars a month — has advantages you can’t afford to miss. For one, it helps you pay your personal expenses and build your savings. That’s crucial if the business doesn’t work out.

How you pay yourself depends on how your business is structured, so talk to your accountant or do some research into taking a salary versus a draw.

3. Start with the required financial documents

Small business financial statements can provide a lot of insight into your business’s financial health. There are three basic financial statements you should know.

Balance sheet: The balance sheet shows what your business owns (assets) and owes (liabilities) at a specific point in time. It also shows your equity — the difference between assets and liabilities — which is the amount of money you would be left with if you sold all business assets and paid off all business debts.

Profit and loss statement: The profit and loss statement, also known as the income statement, shows your business’s revenues, expenses and profit or loss over a period of time — usually a month, quarter or year.

Cash flow statement: The cash flow statement summarizes the cash that moved in and out of your business over a period of time. Analyzing your cash flow statement can help you determine how much cash you have available to pay bills and grow your business.

4. Follow accounting best practices

One of the first financial decisions you need to make in your business is choosing between cash and accrual basis accounting.

Cash basis accounting is based on your company’s cash activity. It records revenue when money comes in and expenses when money goes out. Accrual basis accounting is more complex because it tracks revenue when earned and expenses when incurred, regardless of when cash changes hands.

5. Build your business credit score

Your business credit score impacts everything from qualifying for business credit to landing contracts and the rate you’ll pay for business insurance. So it’s important to regularly check your business credit report.

6. Plan for and pay business taxes

Every business has to pay federal income taxes on business income. How you pay those taxes and the tax rate you pay depends on your business structure.

7. Explore small business loan options

With a clear picture of your business finances, consider whether you want or need a small business loan. A loan can help resolve cash flow problems, allow you to purchase essential business equipment and provide growth opportunities.

With organized accounting records and accurate, timely financial statements, you’ll be in a good position to qualify. Depending on lender requirements, you may also need:

• A business plan
• Accounts receivable and accounts payable aging reports, which demonstrate the financial health and credit risk of your business
• Collateral
• Copies of your business license, articles of organization and any contracts you have with vendors or customers.

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Source: lendingtree

Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.

Business Planning

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