Managing Your Small Business Finances: Tips 1-6

March 19, 2022
Published by Gonzales Group CPA

Understanding and managing your finances is a vital part of running a small business. Working with a San Antonio TX CPA like Gonzales Group definitely makes things easier, but it’s good to have a working knowledge of what is required of you to truly understand your business and how to potentially make it grow and prosper further. In the coming months, we’ll be covering a variety of tips on managing your finances.

1. Accounting Method: While there are certain accounting methods, accrual is usually the preferred method because it gives you a clearer picture of where your business stands. It works by matching each transaction’s expense and revenue as they occur. You list expenses when paid and revenue when earned.
2. Business Entity: When setting up your business, you’ll need to determine the type of business entity you want to be, such as C-Corp, LLC, Partnership, S-Corp, or Sole Proprietorship. There are various reasons for choosing which one is right for your business, because there are different responsibilities and liabilities attached to each. Do your research or talk with a CPA to determine the best option for your business now. Potentially, you could update it in the future, though you may need to make some other changes.
3. Business Bank Account: One thing all small businesses should do is open a separate business bank account. This prevents a lot of confusion and paperwork that arises if you use your personal account for your business, as well. Opening a business bank account requires certain documents: business license, ownership agreements, business formation documents, and your employee identification number (EIN). If you’re the sole proprietor of your business, then your EIN can be your social security number.
4. Balance Sheet: If you’re interested in investing or lending opportunities, a balance sheet is recommended, as these other entities will want to see a clear picture of your financial state. A balance sheet lets you track your assets, equity, and liabilities, allowing you to see the financial status of your company, including any debt.
5. Review Costs: This is fairly straightforward. As your business grows, review your costs and look for areas where cost cutting could be done to help you make more money, but be sure to weigh the benefit of that cut so that you don’t face problems elsewhere.
6. Cost-Benefit Analysis: This can be useful in helping a small business take a better look at its decisions and procedures, especially when considering a potential business action. All costs and benefits of the action are listed, assigned values, and the benefit value sum is then divided by your cost value sum to determine your benefit-cost ratio (BCR). You’re looking for a positive BCR.

These steps will get you started on the road to solid financial management of your small business and soon you may not even be so small! Still, it’s a lot to take in and understand, which is why many small businesses find the cost of hiring a San Antonio TX CPA like the Gonzales Group CPA to be so helpful. In the long run, you’re more likely to save money and avoid costly mistakes, while also taking some of the paperwork pressure off your back.

Categorised in: How to Choose a CPA for Your Small Business, How to Organize Your Small Business Taxes, IRS Tips, What Are Business Expenses?, What Does a CPA Do?

This post was written by Gonzales Group CPA