Your passion may be the driving force behind your business, but your finances definitely influence its stability. Some entrepreneurs enjoy handling the money side of things, even when it’s challenging. However, for many — particularly new business owners — navigating company finances can be stressful and quite confusing.
As with so many business activities, knowledge is key. By getting a little clarity on some essential financial insights, you can move forward more confidently and competently with your enterprise. As you develop your economic prowess, you can empower yourself to make choices to help your company truly thrive.
Identifying Funding Sources
It’s pretty difficult to run a company without some capital. The more funding you can gain, the more freedom you tend to have to invest in staff, products, and projects you think can contribute to your success. Therefore, it’s important to commit regular time and energy to seeking out sources of funding.
Banks
Bank loans are perhaps the most obvious place to start. Most major banks will offer funding packages to start-ups of all sizes. It’s also worth exploring loan programs that are funded or supported by the U.S. Small Business Administration (SBA). While the SBA doesn’t take loan applications directly, they often make funding available to lenders to loan to entrepreneurs from underrepresented demographics or specific industries.
Alternative sources
Banks can be pretty strict in their eligibility requirements, though, and some may not offer particularly favorable interest rates. There are various alternative financing options for entrepreneurs who can’t or would prefer not to seek traditional bank loans. For project-focused businesses, rewards-based crowdfunding — using platforms like Kickstarter — can be effective. This involves you posting the details of your project or product and seeking support funding directly from the public. You also get to leverage the audience that’s already present on the platform as a way to expand your reach.
Angel investors can be a good alternative to banks, as well. In essence, these are wealthy individuals who provide funding in exchange for equity in your company. Many are willing to take risks that banks might not take on enterprises that have great innovative potential. Alongside their money, some angel investors will offer business mentorship as part of the deal, recognizing that their insights can boost the chances of success for you both.
Maintaining Records
It’s hard to overstate how important keeping accurate financial records is as an entrepreneur. The last thing you want is to report your business income and assets incorrectly and fall foul of the Internal Revenue Service (IRS). Records also help you to better manage your expenses. When you can easily see what your company’s real-time finances look like, you can make more informed decisions about what you have and what you need to manage better.
While the IRS doesn’t dictate by law what approach to your financial record keeping you should take, some useful types of reports include:
- Profit and loss (P&L) statement: This is one of the simplest financial records you can keep. It lists your income for the period alongside your expenditures. The latter is deducted from the former to give a picture of your financial position. This helps you to see not just what you have available, but also track your profits and losses over time. You can then identify if you need to make any adjustments to improve your chance of growth.
- Cash flow statement (CFS): As the same suggests, the cash flow statement tracks the cash going in and out of your business. While the P&L provides information for a set period of time, the CFS is more of a running statement, allowing you to see how effectively you are retaining funds and paying your debts.
Wherever possible, hire a member of staff to perform bookkeeping or even consult with an accountant to help you stay on top of this essential record-keeping. There is also a growing range of accounting software available. Many platforms have automated features, such as performing data entry using your business data or generating reports. This can take some of the burden of labor off you if you’re flying solo or have limited access to financial staff.
Navigating Tax Deductions
As a small business owner, finances will often be quite tight. Alongside putting your own money into your company and potentially not paying yourself very much to begin with, you’ll also have tax demands. One of the ways you can relieve a little of the financial pressure is to mindfully and responsibly utilize business tax deductions.
Many entrepreneurs leverage their individual assets in operations. For instance, using your personal vehicle for business has benefits not just because it allows you greater flexibility but also because you can also make tax deductions on it. Your insurance bill and mileage can both be deducted from your taxes. There are certainly cons to using your vehicle for work, like increased wear and tear. Yet, the additional maintenance you pay for to protect your vehicle can also form part of your tax deductions.
If you maintain a home office, you may be able to make deductions here, too. This includes a percentage of your rent or mortgage interest. You can even claim some utilities related to your business operations at home. While you can’t claim the meals you have at home, you can claim those you have while traveling or during meetings.
Remember to keep fastidious records for each item you intend to deduct. Receipts, invoices, and even emails confirming arrangements to have a lunch meeting can support your claims. If in doubt, it’s always best to speak to a tax advisor, who can help you choose the right tax deductions and direct you to the correct forms you’ll need to complete.
Conclusion
Gaining some key financial insights can empower you to make better decisions as an entrepreneur. This includes getting to grips with everything from accessible funding sources to keeping solid records, among others. Additionally, don’t forget that many areas have thriving local business organizations where you can get advice on your business finances. Most importantly, you can make connections that can support you to overcome the challenges you face on your entrepreneurial journey.