Small Business Smarts: Building a Blueprint for Your Business Finances
Part of a series | Small Business Smarts
As a small business owner, understanding and managing cash flow is critical for your success. Strong finances start with a clear foundation, smart planning and good partners. In this episode of Small Business Smarts, ADP's Heather Sperduto helps entrepreneur Victoria Jordan understand cash flow, expenses and more.
Cash flow not only sustains your operations but also enables growth and expansion. Here are five valuable insights to help you navigate this essential aspect of your business finances.
Embrace the takeoff phase
Getting into the takeoff phase of owning a business is both thrilling and challenging. It's a time when you begin to see the fruits of your labor, but also when financial management becomes crucial. Regularly checking in with your accountant can provide clarity on your financial status. Whether you're adjusting your bookkeeping practices or re-evaluating how you compensate consultants and employees, an accountant is an invaluable resource. They can guide you in managing cash flow effectively at every step.
Budgeting basics: Separating personal and business finances
A fundamental principle of effective financial management is keeping personal and business finances separate. This distinction makes record-keeping cleaner and simplifies the accounting process. By doing so, you get a clearer picture of your business's performance.
Establishing a payroll routine
Establishing a regular payroll routine is crucial. Staying on top of each payroll run involves not only managing net pay but also ensuring that you're making the necessary tax deposits. Establishing this habit allows you to assess your cash flow, making it easier to identify patterns and understand how money flows in and out of your business.
Understanding fixed and variable expenses
To manage your finances effectively, it helps to understand the difference between fixed and variable expenses:
- Fixed expenses are costs that remain constant each month, regardless of your revenue. Examples include rent, insurance, and salaries for full-time employees.
- Variable expenses are costs that fluctuate with your business activity. They can include credit card processing fees or, for restaurants, the cost of ingredients.
Understanding these two types of expenses can help you forecast your cash flow more accurately and make informed financial decisions.
Planning for the future
By implementing these financial management practices, you can set your business up for success. Regularly reviewing your financial situation with an accountant, maintaining a budget, and understanding your expenses will empower you to make informed decisions as your business grows.
Conclusion
As you embark on this journey of financial management, remember that resources are available to guide you. With the right strategies in place, you can ensure healthy cash flow and steer your business toward long-term success.
Download Plan, Launch, Thrive: The Small Business Owner's Toolkit today.
Video transcript of "Building a blueprint for your business finances"
Victoria (Vicki) Jordan: Cash flow is always a concern for small businesses, and I want to make sure that mine thrives. So I'm going to reach out to someone who can give me some guidance. Heather Sperduto with the ADP. Hi, Heather.
Heather Sperduto: Hi, Vicki. How's it going?
Vicki: It's going great. So great, in fact, that I have to start thinking about growing and, setting myself up for success as far as, like, how to support cash flow and my finances.
Heather: Vicki, it sounds like you're in that takeoff phase of owning a business, which is exciting. I always encourage small business owners to proactively check in with their accountant and review what's really going on. Whether your bookkeeping is changing or you're adjusting how you pay consultants or employees and handle benefits, your accountant can help you ensure that you're managing cash flow every single step of the way.
Vicki: Okay, so tell me a few things about how to look at my budget.
Heather: Well, for starters, Vicki, business owners should separate their personal and business finances. This keeps record keeping clean and easy for your accountants to manage. Secondly, getting into a regular routine is key, especially around payroll. That means staying on top of each payroll run, not just the net pay, but also the taxes that have to be deposited and paid.
Heather: Once you build that habit, every pay cycle becomes much easier to step back and assess how money is flowing in and out of your business, and that will help you make more informed decisions.
Vicki: What are fixed expenses versus variable expenses? What do those terms mean?
Heather: Typically, fixed expenses are the costs that stay the same each month, no matter how much you sell and the revenue you bring in. Think of it in terms of rent or insurance or salary wages for full-time staff. Now variable expenses. They rise and fall with your business activity like credit card processing fees. Or, for restaurants, consider the cost of ingredients. Also maybe shipping. Or how about the hourly labor that increases when you get busy?
Vicki: Thank you so much, Heather.
Heather: Looking forward to hearing more of your success in the near future, Vicki.
Vicki: I'm going to start to put all this together and make an appointment with my CPA.
