You’ve done it! You came up with the perfect business idea. Now, how do you make that idea into a successful business? Your first step isn’t to come up with a catchy name or design the perfect logo, it’s putting together a financial plan. There are many different financial elements to consider when running a business, and you should have a clear understanding of your financial position before you launch. Here’s a quick overview of small business expenses and how to manage them.
Fixed Costs and Variable Costs
Fixed costs are the costs that your business must pay, no matter how much of your product or service you sell. Overhead, such as rent and payroll, for instance, is a fixed cost. Many entrepreneurs start out as a very small team working out of their home, and so have lower fixed costs. Even so, it’s wise to calculate what the cost would be in the future when your business grows beyond your home office so that you can better prepare for this growth.
Variable costs change based on how much of your product or service you sell. Costs of labour, materials, and delivery are good examples of variable costs. Since you’re just starting your business, this will be an estimated amount. As your business continues to grow, your variable costs will be more predictable and set.
Managing Cash Flow
Once your business has gotten rolling and you’re generating revenue, it’s time to accurately manage your cash flow. You can keep this in check with an invoicing strategy that puts accounts receivable (money owed to you) on a set schedule. Making this schedule and any retributions that may come from late payments clear to your clients from the beginning sets the tone for a successful working relationship. It also avoids unexpected overdraft fees on your account because a payment came in late.
A common business strategy is to accept some of the money upfront before finishing the task. This is called unearned revenue, and you need to be very careful with this money since the goods/service promised have not yet been delivered. Keep a detailed record of this, in case of future disputes between the client and your business. This is where a tool like QuickBooks or Xero comes in handy because it allows you to create billable entries such as delayed charges. That way, you’ll never forget to bill when a project is complete. Customer satisfaction helps a business succeed, but protecting the future of your business with diligent accounting is imperative.
On top of your accounts receivable, you also have accounts payable to manage. This is the money that you owe, and it is everything from your rent to creditors. Keep on top of this by simplifying the process – set up all your payments to be due on the same date, most companies are happy to do so with a simple phone call.
This is a lot of important work for one entrepreneur to handle. Having a dedicated accounting team can make this easier, but for small businesses, it’s not feasible. When you outsource your accounting team, you get more flexible billing and a team of experts that you pay when you need them, which makes it easier. They can also guide you through important financial milestones in your business to ensure future success.
Accounting for your small business can be overwhelming and more often than not, it’s best to trust the professionals so you can focus on your business. At Qmulus, we use the top accounting software and have worked with entrepreneurs at every stage of their business. No matter which you’re currently in, we’re here to help. Schedule an appointment or give us a call at 647-476-2145 to get started.