For Business Owners

8 Tips For Managing Your Small Business Finances Effectively

Managing your business funds is essential to keep your company running smoothly. Lack of attention to your small business finances may result in missed opportunities for important tax deductions, difficulty with financing, and uneducated business decisions—read on to see our 8 tips for managing your small business finances effectively.

Use Wafeq - an accounting system to keep track of debits and credits, manage your inventory, payroll, and more.

1. Keep Personal And Professional Funds Separate

Many brand-new small company owners pay for business costs using their personal credit cards and transfer profits into their personal bank accounts. While initially, that could be practical, it might result in significant problems. For instance, some tax authorities permit business owners to write off costs for things like supplies and travel connected to their operations. You must, however, back up the deductions with the appropriate paperwork. You risk losing out on such deductions if the tax authority examines your return and you can't clearly identify which personal and business-related transactions.

You should create a company bank account to prevent that hassle. Often, you may locate one that provides limitless transactions, free checks, and no monthly maintenance costs.

2. Pay A Wage To Yourself

As a small business owner, you could pay yourself last or forego a paycheck completely in order to save money and invest more in expanding the company. Even if it's just a few hundred bucks a month, paying yourself from the start provides benefits you can't pass up. One benefit is that it aids in conserving money and covering personal expenses. If the company doesn't work out, that is essential. How your firm is set up will determine how you pay yourself, so consult your accountant or study before choosing between a salary and a draw.

3. Begin With The Necessary Financial Records.

Financial statements for small businesses may reveal a lot about the condition of your company's finances. You should be familiar with these three fundamental financial statements.

Balance Sheet

The balance sheet displays the assets and liabilities of your company as of a certain date. It also displays your equity, which is the amount you would have left over after selling all of your company's assets and paying off all of its obligations. Equity is the difference between assets and liabilities. Your balance sheet's figures help you decide if your company can pay its debts, whether you can add assets, and whether you can borrow money.

Statement Of Profit And Loss

The income statement, also known as the profit and loss statement, displays your company's sales, costs, and profit or loss for a specific time period, often a month, quarter, or year. Your profit and loss statement may be examined to assist you in identifying the profitable areas of your company. While considering whether to invest in you or lend to you, lenders and investors both go through your profit and loss statement.

Cash Flow Statement

The cash flow statement lists all of the cash transactions that took place in and out of your company during a specific time period. You can evaluate how much cash you have available to pay payments and expand your firm by analyzing your cash flow statement.

Read more: Business Budgeting Simply Explained.

4. Adhere To Accepted Accounting Principles

Selecting between cash and accrual basis accounting is one of the first financial decisions you need to make for your company.

The basis for cash basis accounting is the cash flow of your business. As money is brought in and spent, it keeps track of both.

Because revenue is tracked when it is received and costs are incurred, regardless of when money is exchanged, accrual basis accounting is more complicated.

5. Choose An Accounting Program

Accounting software, such as Wafeq, may help streamline your business’s financials and make monitoring revenue and spending much easier. Also, clean financial documents for your firm will make your accountant happier than a pile of receipts at tax time. There are several possibilities for small company accounting software, so it's worthwhile to compare them all and use their free trials. Some characteristics to consider are:

  • Access the cloud so that you and your accountant can access your books from anywhere at any time.
  • Customer support standing ensures that, should difficulties arise, you won't have to struggle alone.
  • Options for integrating your books with other systems, such as your payroll provider, customer relationship management (CRM) software, and company bank account.
  • Automated processes for tracking and categorizing spending, delivering invoices, and other functions.

Wafeq is an easy-to-use accounting software that ticks all the boxes and is perfect for small business owners.

Lean x Wafeq: A Fintech Success Story (5 entities in 5 months).

6. Increase Your Business's Credit Rating

Your company credit score affects a variety of factors, including your ability to obtain business finance, your ability to obtain contracts and the cost of your business insurance.

7. Organize And Pay For Company Taxes

On their company income, all businesses must pay federal income taxes. Your business structure affects how you pay those taxes and at what rate.

Make it a practice to set away a portion of your money each month so you can pay your anticipated taxes on time.

The deadline is moved to the following business day if any of those days fall on a weekend or holiday.

8. Examine Your Choices For Small Business Loans.

Consider a small business loan after understanding your company's finances. A loan may be able to help you with expansion prospects, acquire necessary company equipment, and manage cash flow issues.

You'll be well-positioned to qualify if you keep well-organized accounting records and provide accurate, timely financial statements. You might also need:

A business plan

Account receivables and payables reports, which show your company's financial stability and credit risk


Copies of your company license, bylaws, and any agreements you have with clients or suppliers.

The Conclusion

Overall, managing your small business’s finances effectively is simple by following the points above. Accounting software, such as Wafeq, helps you keep compliant, error-free, accurate, and easy-to-use records while saving time and effort on all ends. Reach out now, and start your Wafeq trial today!