Managing your finances is one of the most important things you can do as a business owner. After all, you’re in business to make money, so why wouldn’t you want to make sure you’re making the most of that money?

Unfortunately, a lot of small business owners don’t think beyond paying their bills and making sure their clients pay their invoices. Yes, keeping track of your revenue and your expenses is important, but that’s just the first step in managing your small business finances. If you want to know how to make the most of your money and use it to scale your business, keep reading.

1. Separate Your Business Finances from Your Personal Finances

A lot of small business owners, especially sole proprietors, make the mistake of managing all their business and personal finances from the same bank account or using the same credit card. Even those who do keep separate bank accounts and credit cards sometimes pay for personal things on their business credit card and buy things for their business on their personal credit card.

This creates a mess that can take hours to unravel when it comes time to file your taxes. By keeping all your personal money separate from your business money, not only do you make it easier on your accountant during tax season, but it also gives you a better idea of how the business is doing and what changes, if any, need to be made.

Keeping your business and personal finances separate is also vital if you ever want to try to get a business loan. If you make a bank sort through your personal finances to try and figure out the financial health of your business, they’re not going to take you seriously.

2. Pay Yourself a Salary

Another common mistake small business owners make when they’re just starting out is not paying themselves a salary. They move money from their business account to their personal account when they need money for their personal expenses. Or they pay their business expenses first and move whatever’s left over to their personal account.

Instead, you should pay yourself a salary just like you would pay any other employee. Your salary is part of the business’ expenses, and you should pay yourself the same amount every month. Whatever is left over after paying all your business expenses (including your salary) is the profit your business made for the month.

3. Familiarize Yourself with Financial Documentation

There are a lot of financial documents you can create for your business but start with the main three: balance sheet, profit and loss statement, and cash flow statement.

Balance Sheet

Your balance sheet shows what your business owns (assets) and what it owes (liabilities) at any given point in time. The difference between your assets and liabilities is your equity. It’s a way of determining how much your business is worth at a specific point in time.

Profit and Loss Statement (P&L)

The profit and loss statement shows how much revenue came into your business and how much you spent on your business in a given time frame (usually a month, a quarter, or a year). If your revenue exceeded your expenses, you had a profit. If your expenses exceeded your revenue, you had a loss. Hence the term “profit and loss statement.”

Cash Flow Statement

Your cash flow statement provides a summary of the amount of cash that moved in and out of your business over a given period of time (again, usually a month, a quarter, or a year). This gives you an idea of the amount of cash your business has to pay its bills and invest in growing your business at any given time. For example, if you want to buy some new equipment, hire new staff, or invest in new marketing efforts, you’ll need to check your cash flow statement first to see if your business can handle the added expense.

4. Build Your Business Credit Score

Just like building and maintaining a strong personal credit score is vital for your personal finances, the same is true for your business. A good credit score for your business can help with everything from qualifying for business loans and credit cards to the amount of business insurance you have to pay. It could even impact your ability to land contracts if people decide to look up your company’s credit score before deciding whether they want to work with you.

5. Plan for Business Taxes

If you had a job where you worked as someone else’s employee, you’re probably used to tax time being the time when you get some extra money to put in your bank account. When you own your own business, tax time is time for you to send money to the IRS, rather than the other way around. That means you need to take taxes into account all year long.

That could mean setting up a savings account and putting aside a certain amount of money every month so you know you’ll have the cash on hand when it comes time to pay.

Depending on how your business is set up and how much it makes, you might have to pay your business taxes every quarter rather than once a year. Make sure you talk to a qualified accountant who’s familiar with the business tax laws in your area so they can advise you on the best practices for getting ready for tax season.

Need Help?

I know this is a lot, but it’s just the beginning. And you have a business to run. If you need a professional to manage your small business finances for you while you focus on growing your small business into a big business, you can schedule your free consultation here to get started.