Your first few years in business are critical. The company you create will succeed or fail based on your financial decisions. In addition to generating a profit, an owner needs to closely monitor their cash flows and how assets are used in the business.
Types of cash flows
Your ability to generate cash inflows is just as important as generating a profit. If you can’t develop cash inflows, your business can’t operate.
Not all cash flows are the same. A healthy company should generate cash flow from operations. If you’re a jean manufacturer, for example, you should generate the majority of your cash flow from making jeans and selling them to customers.
In addition to cash flow from operations, you may generate cash from selling assets. If the jean manufacturer collects cash from selling a piece of equipment, that’s considered cash flow from investing. Assets sales cannot be your primary source of cash. Eventually, you’ll run out of assets to sell.
As your business grows, you may need to raise money to expand. One way to raise funds is to sell a percentage of ownership in your business by issuing stock. The other way to get more capital is to borrow money from a lender.
When you borrow money, it’s important to repay the principal (the original amount borrowed) and the interest amounts on time. Paying on time will help you build your firm’s credit rating. Your lender will report your payment history to credit bureaus. These bureaus collect data on borrowers and calculate a credit rating.
Sometimes, incorrect data is posted to your credit report. The incorrect information may be a debt that is not from your business. In other cases, a lender may report that you paid a debt late, when the debt was actually paid on time. It’s important that your credit report is corrected, so that your business receives a credit rating based on accurate data. A credit repair expert can explain credit report disputes and how to solve them.
Using financial reports
A business owner should post all business activity to their accounting records frequently. Don’t write checks or make bank deposits without quickly posting that data to your accounting system.
Your accounting software generates your financial statements. If any transactions are missing, your financial reports will be incorrect- and not useful. Fortunately, there are accounting applications that make this process easy. QuickBooks online allows you to post transactions using a computer or a mobile device. Using a mobile device can help you stay on top of your accounting activity.
Supervising your employees can be a time-consuming process for a business owner. Managing your startup means that you’ll hire, evaluate and promote workers.
Handling payroll can be particularly difficult. A company needs to withhold the proper amounts for taxes and benefits. You need to report those withholdings to a variety of entities and send payments each month. This task becomes more complicated when tax withholding rules change.
The best way to handle payroll is to find an expert to help you. Wagepoint, for example, is a cloud-based payroll system. This software can manage your employee’s payroll calculations for taxes and other benefits. The system can also make direct deposits to each worker’s account. Using an outside service can save a business owner time each month.
Managing the finances of your startup can be challenging. Consider using technology to save time and stay of top of your finances. These tips can help you succeed in the critical early years of your business.