How to Get a Handle On Your Small Business Finances

  •    A freelance reporter and writer based in Philadelphia, Pa., Dinah previously worked as a staff reporter for The Associated Press and Dow Jones Newswires.

Your venture is going strong, driven by your entrepreneurial energy and creativity. Unless you're drawn to numbers, however, you may find yourself putting aside bookkeeping and other important financial tasks while you tend to some of the more exciting aspects of running a small business — like marketing, social media, product development and web design (depending on who you ask).

Even artistic, math-averse entrepreneurs need to keep on top of their small business accounting to sustain success and avoid stumbling. Clean, well-organized records also streamline your tax preparation and help ensure your filings' accuracy and quality.

If you cover the fundamentals at a bare minimum, it will help you rest assured you're doing enough to keep your operation's finances in good health. Here are the basics you need to make sure your financial records — and ultimately your business — stay on track.

The Basics

First, it's important to know what you need to know. As the U.S. Commerce Department notes, three reports are key for any business:

• Monthly, quarterly and annual income, or profit-and-loss, statements, which summarize a company's revenue and expense sources, indicating its financial condition — that is, whether it's profitable, operating at a loss or has reached its break-even point.

• The cash flow statement, which gives a picture of the business's ability to fund operations and pay its bills through available cash.

• The balance sheet, which also illustrates your venture's fitness at a given moment by detailing its assets and liabilities.

In addition to those three documents, business financing platform Fundera advises that businesses also make a revenue forecast to help inform decisions and plan for the coming months and year.

Fundera also cites several key accounting terms that every business owner should know, such as gross revenue (total funds your business takes in), net profit, aka net income or earnings (the company's bottom line after subtracting expenses from revenue) and cash flow (a measure of cash available at the start and end of an accounting period).

Making It Happen

You have a number of options for handling the records and reports necessary to keep your business finances in order.

You can leave it to the professionals, tapping a bookkeeper, accountant or both to handle your records. While bookkeepers and accountants handle some of the same work and may collaborate, they generally serve different purposes.

Bookkeepers record and organize financial transactions, while accountants take on a broader role that includes analyzing business data, ensuring accuracy and preparing financial reports.

You also might rely on any of a variety of cloud-based software platforms — either on their own or in concert with a hired professional — to help manage your business finances.

QuickBooks Online, FreshBooks, Xero, ZipBooks and other services geared to freelancers or small to medium-sized businesses allow you to perform a number of accounting tasks, often at low cost or for free, with exact offerings varying among providers and service tiers selected.

Depending on your needs, you might choose a program that allows you to manage documents, invoice customers, accept payments, handle payroll if you employ others and record and track accounts receivable and payable, inventory and time. Online accounting platforms also may provide forecasting and other analytics in addition to historical reports.

Helpful Guidance

If the very idea of organizing your finances or finding the right accountant or software feels overwhelming, a number of organizations offering free small-business advice and mentoring should be able to guide you.

The non-profit SCORE provides free webinars, on-demand courses, mentoring and low- or no-cost in-person events, such as one recently advertised workshop to introduce "the non-financial person" to income statements, cash flow statements, balance sheets and budgets.

The U.S. Small Business Administration also offers free resources on virtually every aspect of running a business, including the financial basics and information on obtaining loans. The SBA supports Small Business Development Centers across the country — typically connected to universities — that provide workshops and business consulting services.

However you approach it, accurately and efficiently managing finances is important for even the smallest business. It allows you to track spending, billing and other transactions so you can find places to save, make sure you're being paid, gauge your business's well-being and plan for its future.