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If you are like many small business owners I meet, you started your business to be independent. As your small business grows, the financial aspect is many times neglected. To help you along the way, I have compiled ten practices for improving your business finances.

1. Educate Yourself
Just because you outsource your bookkeeping does not mean you are off the hook. Taking an active part in the financial reporting of your business will play a huge role in the ultimate success or failure of your enterprise. You will be able to spot any trouble if it should crop up.

There are a number of ways to learn what you need to know. Take a class at a community college, read books, or research on the internet. But the best way is one-on-one. Don’t hesitate to ask your bookkeeper, CPA, or a trusted advisor to train you to understand your accounting software, and reports.

2. Expect to pay more for quality help
When you have a limited budget to spend on bookkeeping, a high quality bookkeeper can be one of your best assets. A main benefit of hiring a good bookkeeper is that you get good data throughout the year on which to base your decisions. And at tax time, it’s crucial.

If you give your CPA inadequate financial records prepared by an $8 an hour data entry bookkeeper, the work often has to be redone, at a much higher CPA-rate. When you spend money on a CPA, you want to get solid tax and retirement planning, not basic accounting tasks.

3. Establish a hierarchy of bills
Do you have a plan in place in case cash flow is tight? By developing a hierarchy of bills, you’ll ensure that even with limited funds, you can still meet your most important obligations.

Your first priority should be payroll and payroll taxes, (and your bookkeeper). If you don’t pay people, they’ll stop working for you. And if you don’t take care of your payroll taxes, you’ll find yourself in trouble with the IRS faster than you can say “lien on me.”

Next are those vendors who report to a credit agency. Poor credit can adversely affect your ability to get credit when you most need it. Car loans, equipment leases, and credit card bills are at this priority level. Then pay everyone else as you’re able.

 

4. Outsource your payroll
A payroll service not only helps you calculate and deliver the payroll, it also alleviates you from the responsibility of staying on top of the latest tax laws. Payroll services handle the burden of payroll taxes for you. The worst thing to fall behind on is payroll taxes. A payroll service withholds the tax funds before you can spend them, ensuring you won’t come up short at tax time.

5. Reconcile bank and credit card statements completely
Checking your bank statements should be a monthly habit, because they give you information about what’s happening with your business. This is increasingly important as the instances of identity theft increase.

Review outstanding checks and find out why they’re outstanding. You may have checks that got lost in the mail, but your vendor just thinks you’re avoiding payment. Check to be sure that your deposits were actually credited to your account.

6. Pay yourself and track your hours
In the early years of your business, it’s common to work without paying yourself. But unless you want to work for free forever, you must have a plan for moving beyond that phase. When you don’t pay yourself, you’re not only missing out on income, you’re also missing out on tax savings and retirement plan savings.

By tracking your hours to particular projects, you’ll learn very quickly which activities make you a profit and which ones don’t. Find a system that works for you, and use it religiously.

7. Develop budgets, goals, and projections, and use them
Goals are your destinations, projections are checkpoints along the way, and your budget is the fuel for the car. By measuring your progress at various checkpoints throughout the year, and comparing your budget to actual numbers, you can tell if you’re going to meet your goals or run out of steam along the way. Things almost never unfold as you expect them to. Regular assessments of your progress enable you to make adjustments as needed and still achieve your goals.