Many people dream of the idea of working for themselves and being their own boss. Once their company is up and running, however, many small business owners find themselves overwhelmed with the mechanics of managing their business’ finances. Indeed, one of the most important parts to keeping a business humming is making sure you know how to manage your money. Even if you plan to hire your own accountant or outsource your finances, there is no substitute for having a grasp over your company’s finances. There’s no getting around the fact that entrepreneurs need basic skills such as reading bank statements, working with various payment methods, making sense of tax forms and understanding accounts receivable and payable.
Setting up banking for your business
Once you register your business, one of the first things that you need to do is open a business checking account. You need to choose the best bank in your neighborhood, make an appointment and put in the paperwork necessary. Be sure to bring along your business license, registration papers, personal ID and Social Security card to the appointment.
You don’t need to bring much money — $100 is all you need. The bank will look up your credit score, and if it is sound, set up your account with a line of credit. It can be an excellent way to tide your business over at times when you are dealing with short-term cash flow problems.
Working with payments
You need to make sure that you offer your customers every method of payment that is reasonably popular in your area. From cash, checks and cards to the newer contactless payment technologies that work over smartphones and smartwatches, such as Apple Pay and Google Wallet, it’s important to be versatile and offer as many payment options as possible. Certainly, these new technologies add to your cost of doing business. You can’t sidestep them, though. Studies prove that businesses that offer a wide range of payment methods raise their sales up by as much as 50 percent.
PayPal, Authorize.net, Intuit, ProPay, Click2Sell, and other online payment services are hugely popular, with hundreds of millions of users both in the US and worldwide. While prices and fees vary, they offer the convenience of being up and running quickly. If you plan to sell online, it’s important to set up with as many of these services as possible.
It is also important to set up to accept cash. No matter what high-tech method comes around, you’ll always find that some customers want to pay cash. Making sure your bank account is set up with a bank nearby will help you make daily deposits.
Setting out payment terms
A plan for the standard terms of credit that you will extend to business customers is an important part of your business plan. The number of weeks that you can wait before you expect payment is something that should be on every formal contract, estimate form, invoice, work order and monthly account statement. You also need a policy on the circumstances under which you will be flexible, and depart from your standard credit policy.
Credit isn’t something you’ll be able to extend to every customer, of course; it should only be available to those who are creditworthy. You’ll need to sign up with credit reporting agencies such as Experian, Equifax and TransUnion before extending business credit.
You need to calculate the costs of vetting customers for credit, allowing deferred payments and the inevitable losses that you will occasionally take when customers fail to pay. It takes considerable accounting experience to factor these costs into your pricing structure.
Debt collection
You always need to plan for what you will do in the event that you aren’t paid for goods delivered or services rendered. Someone at your business needs to be in charge of keeping lines of communication open in the form of letters, phone calls and personal visits. When these attempts fail, you need to have a professional debt collection agency (preferably one registered with the Association of Credit and Collection Professionals) working for you, and know of lawyers who can help you take your case to court.