Keep Small-Business Finances In Order

Small businesses are the backbone of the U.S. economy, but small-business owners often struggle to keep their finances in order while managing the day-to-day operations.

Smart financial management is critical to a business's success or failure, and it doesn't have to be complicated. Any small-business owner can develop a sound plan. Here are the experts' top tips for success:

Separate business from personal

One of the easiest first steps is to open business bank accounts that are separate from your personal bank accounts. Separate accounts will make record keeping easier and help you avoid paying personal bills with business income.

Understand Business Finance 101

You don't have to be a numbers wiz, but you should understand the basics, such as a profit and loss statement. This simple document will help you see your expenses and revenue in black and white. Get your CPA involved in your business planning early. Ask your professional expert to teach you how to understand your numbers and make decisions with the information.

Know the code

This means know the tax code that affects you. Small businesses pay estimated taxes quarterly that are applied to the liability when a return is filed at the end of the year. Keep up with the dates of when payments are due and the estimated amounts. Be sure you've set enough money aside. If you have employees, you'll need to know and understand how much you need to deduct from their paychecks to cover their tax liability.

Plan for the worst; hope for the best

Create a budget and spending plan for your small business that includes paying yourself a proper amount and developing a financial cushion for lean economic times. Have a contingency plan should you lose your best customer, you don't receive payment on time, or the economy takes a nosedive. Know how certain crises will affect your cash flow.

Send those invoices

You might be surprised at the number of small business owners who put invoicing on the back burner while they fight fires in the day-today business environment. By not invoicing in a timely manner, cash flow problems are created, making it difficult to meet financial obligations. So get those invoices out quickly, and follow up to make sure they are paid on time.

Cash is king

It's trite but true: cash is king, especially in difficult economic times. If you're considering a capital purchase that requires you to incur debt, be sure the expenditure will generate enough cash to pay for itself over a reasonable period. Otherwise, you might want to consider postponing the purchase.

Evaluate objectively

When a small business is fighting for survival, there are no sacred cows. Step back, take an objective look at your finances, and be prepared to make tough decisions. Are you getting the maximum return from your investment? If not, why not? Do you need to sell assets that aren't contributing to the financial health of your business?

Restructure debt

Many small businesses carry some debt, and some can make it work for them. Good debt management helps cash flow by providing short-term financing for seasonal needs, or long-term financing for major purchases.

Stay organized

Timely information certainly is needed to run a business and to file taxes, but the time may come when you need to ask for a new loan or change the terms on an existing loan. Be organized and prepared. Have current inventories, cash flows and balance sheets ready for review with your bank. Be proactive in contacting your lender to resolve situations that may arise due to a change in your business plan.

A CPA can help

Many small-business owners are comfortable making basic financial planning decisions on their own, but if they encounter a situation where they'd like to discuss their options in greater detail, a CPA can help. If you have questions about financial planning for your small business, contact your CPA.

For more information about Pennsylvania Institute of Certified Public Accountants (PICPA), visit www. ineedacpa.org.

By The Pennsylvania Institute of Certified Public Acc ountants

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