As a small business owner, you have vision and courage. You can clearly see how your product or service will serve humanity. You have also seized the courage to go into business for yourself.
If you also have a passion for marketing and selling, you probably have everything you need to run a successful business.
However, you will not realize your full potential as a business owner if you struggle with keeping track of your finances. A great product and the ability to sell it well are not enough if your finances are out of balance. Your income must be greater than your expenses to have a viable business.
If you aren’t keeping track of how much money flows into your business and how much money is flowing out of it, you have no idea whether you have a viable business or not.
You could be doing everything well, but if your overheads grow at a faster rate than your revenue stream, then you will have a business crisis.
It actually doesn’t matter how much money, you are bringing in. It could even be in the six or seven figure range. If your costs exceed your expenses, your business is in trouble.
People are often bewildered when millionaires and billionaires go broke. How is it possible? It’s actually simple math. Their expenses exceeded their income.
Business Finance in A Nutshell
A solvent business is a viable one. It means you have a financially healthy business.
How do you know if you have a solvent business, if you’re breaking even, or if you’re heading for trouble?
Use this algebraic equation to answer this question:
If i represents income and e represents expenses than you can have three possible situations:
- If i>e then income is greater than expenses and you have a solvent business.
- If i=e then income equals expenses. Your business is not profitable, but you will not go out of business, either.
- If i<e< span=””><e< i=”” style=”font-style: inherit; font-weight: inherit; line-height: 1.45em; background-color: initial;”> then income is less than expenses and you must correct things as quickly as possible to stay in business.</e<>
You can find the value of i and e by looking at your income statement, balance sheet, and cash flow statement.
How to Keep Track of Your Finances
When it comes to keeping track of your finances, two solutions that would work well for you are using Asure Software and accounting software.
- Asure Software.
Asure Software will help you monitor many aspects of your business to keep your finances under control. You will get a good idea where to cut costs if your overheads are greater than your income. This cloud-based solution is a full suite of applications to help you manage your business better, including asset management and business analytics. It will help you realize a significant return on your investment when it comes to employee productivity, renting office space, and investing in technology.
- Accounting software.
Accounting software products vary in price. Providers often offer a subscription model, as well as some free versions with very limited functionality. Price can range from $10 to $40 a month.
The most popular accounting software in 2016 is Wave Accounting for small businesses, Zoho books for solopreneurs, and Freshbooks for small business owners looking for a Mobile app.
Here are some of the features you will find in accounting software:
- · Expense tracking
- · Sales tracking
- · Recurring invoices
- · Automatic past-due billing
- · Payroll services,
- · Advanced reporting
You need accounting software even if you’re just starting out, as it can be a huge hassle trying to transfer information from spreadsheets or, worse still, from handwritten ledgers. Your financial numbers will grow fast. If they become rather sizable a few months into your business, imagine how difficult it will be in a year or more.
By efficiently keeping track of your business, it will be much easier to grow it. You will always know when your overheads are getting out of hand or if you need to do something urgently to increase your revenues. Once you have achieved financial stability on a regular basis (i>e) than you will know when it’s time to grow your business. In other words, you will grow your business based on real data rather than wild ambition.
Once you have a handle on your finances, you will be able to streamline your operations. You can figure out where you are spending too much by linking up your bank accounts, credit cards, and debit cards to track your expenses and keep your books updated.
When researching accounting software, look for something that suits your business. If you get accounting software designed for a medium to large business, you may find it unnecessarily complicated, offering you many more features than you can use.
Take Charge of Your Finances Today
Admittedly, there is a huge difference between the personality of entrepreneurs and accountants. Entrepreneurs like to build things while accountants like to manage the things built. Unfortunately, you have to be a little bit of both when starting out in business. Once you make enough money, you can outsource all your accounting, but until then you must have a working understanding of financial management to run a solvent business.