10 Tips for Managing Small Business Finances

Small business owners in Jamaica often complain about inadequate access to financing opportunities from financial institutions. Two critical factors scare many financial institutions away:

1. The high risk of a small business in Jamaica because the business’ earnings are so volatile.

2. Poor financial record keeping.

Can we blame them? They have billions of depositor’s and shareholder’s money in their coffers and they are expected to use this money judiciously. What proof can you provide that investing in your business is the best decision they could make?

Your balance sheet.

Your income statement.

Your stellar bookkeeping.

Is your head spinning yet? Frankly, few people who start a business in Jamaica take the time to understand finance and the impact it has on their business. It takes a lot of patience and time to get it right.

However, knowing your numbers helps you better position your business for growth and opens you up for more financing opportunities. Here are ten tips for managing your small business finances so that your business qualifies for more funding opportunities.

Manage Small Business Finances Tip #1: Create a Business Bank Account

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This seems like a no-brainer but it’s an important point that some small business owners in Jamaica tend to ignore. It’s highly likely that you will register your business as a sole proprietorship. How will you show a clear distinction between your personal funds and the money earned for the business if everything goes into your personal account? You can learn how to register your business in Jamaica by purchasing a copy of The Business Playbook.

Sure, owning a sole proprietorship means that there is no separation between personal assets and business assets. Therefore, the tax office (and other debtors) can still claim your personal funds to clear tax debts. Nevertheless, having that clear distinction helps immensely with keeping track of your business’ finances.

Some of the smaller banks, such as JMMB and JN Bank, offer attractive business accounts for micro and small business owners. I opened my CEM Writing Services micro business account at JMMB with 1,000 JMD. Sagicor Bank has a higher deposit requirement but you can access their portable Point of Sale (POS) Swype machine which is great for entrepreneurs who sell products on the go. Do as much research as possible to find the small business bank account that works for you and the needs of your business.

Manage Small Business Finances Tip #2: Write a Business Plan

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We often underestimate the power of a well-written business plan. The financial plan/projections section breaks down your existing and/or projected earnings using an income statement, balance sheet and cash flow statement. Write it well and you’ll be able to have a clear vision of the financial structure of your business for the next 3 to 5 years. Read this article to learn how to write the financial plan/projections section of your business plan.

Manage Small Business Finances Tip #3: Use a Virtual Invoicing Tool to Track All Transactions

Image Source: G Suite Accounting by Wave

You may be selling products out of the trunk of your car. However, it’s important for you to keep a written record of each sale. One way to do this is to send each customer an electronic invoice. A little secret is that it also serves as a way to build your email list. The process could work like this:

1. Ask each customer to provide his or her full name and email address so that you can email an invoice and follow it with a receipt.

2. Use a free invoicing app, such as Wave, to send your invoice and receipt. All transactions are stored on the digital platform so you can generate sales reports for each week or month if you desire.

These free invoicing apps also allow you to track payments made to suppliers. Therefore, you can track both inflows and outlines.

Manage Small Business Finances Tip #4: Keep All Your Receipts

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Running a sole proprietorship means that you have to keep track of all your expenses. Those receipts that you throw away nonchalantly are important. Invest in a strong, waterproof and secure folder that helps you file your receipts for each month. It makes a huge difference at the end of each month when you are trying to create an income and expenditure statement which will then feed into your income statement at the end of the year. These numbers become extremely important when you file your taxes.

Manage Small Business Finances Tip #5: Create an Income and Expenditure Statement for Each Month in a Spreadsheet

Image Source: Microsoft

Microsoft Excel should be your best friend. It’s a nifty tool for budgeting and generating useful income and expenditure statements. You should develop the habit of creating income and expenditure statements monthly, especially as your business grows. It will seem tedious initially but will provide tremendous insights that can help you make informed decisions about business growth.

Click the link below for a Microsoft Excel file that you can download to create monthly income statements which you can then use to create an annual income statement. This file was created to assist any business registered as a sole proprietorship. Remember that you have to keep track of all your income and expenses in this type of business. Need some help? Contact us by completing the contact form at the end of this article.

Manage Small Business Finances Tip #6: Hire a Freelance Accountant at Year-End to Add the Professional Touch

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Don’t rush to secure financing, especially if you have just started your small business. Spend at least a year getting comfortable with good financial record keeping so that you can truly keep on top of your business’ finances.

You may not be able to afford a full-time account. However, many freelance accountants are available to help you at the end of the year to formalize your documents and ensure that everything adds up. This formal touch can make a big difference when you apply for small business financing the following year.

Manage Small Business Finances Tip #7: Understand the Story the Numbers are Telling You

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Your monthly income and expenditure statement tells a story of what’s really happening with your money. Are certain expenses too high? Is income too low? What is a influencing these numbers? What can you do differently to increase after tax profits? if you have acquired debt, how high is your debt to earnings ratio?

Manage Small Business Finances Tip #8: Learn to Budget

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Budgeting is just as important for your small business as it is for your personal finances. One of the downfalls of running a small business is that earnings are volatile. You more than likely don’t know from one month to the next how much money you will earn, especially in the first year of your business.

Nevertheless, you can create a detailed budget using an estimate of what you hope to earn in the upcoming quarter or year. Your budget should include:

  • projected income
  • marketing expenses (digital marketing, traditional marketing, costs to attend networking events and expos)
  • operating expenses (utility bills, office furniture costs etc.)
  • salaries (if any)
  • interest expenses on debt (if any)
  • investments
  • education and training expenses (if any)

A budget helps you better manage your expenses and better use your volatile earnings.

Manage Small Business Finances Tip #9: Invest

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Leaving your money in a savings or chequing account and hoping for the best guarantees that your money won’t be working for you. The bank account you opened in tip #1 should be used to finance the recurring expenses of the business. You’ll better understand the cashflow for your business after at least a year.

If things are going well, it’s a good idea to begin setting aside a portion of your money (roughly 20%) for investments such as stocks and bonds. Just remember that there is a portion on the SO4A form that requires information about dividend payments so always keep track of these cheques or bank deposits each year. Don’t jump into investments, however, before doing your research and ensuring that your business can handle investment requirements.

Manage Small Business Finances Tip #10: Read Simple Numbers, Straight Talk, Big Profits

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This book changed my thinking about small business financial record keeping when I read it about four years ago. It is an excellent resource for understanding how to keep daily tabs of your the finances of a micro or small business. It also helps small business owners identify the red flags that are a clear indication that the business is heading down the road of no return. This book has global application and should be on the bookshelf of every small business owner in Jamaica. You can purchase a copy by clicking this link.

Final Words

The process of managing the finances of a small business can seem tedious. However, it’s important for the growth of the business. You must know your numbers so that you can make informed decisions about the future of your company. Business success isn’t a spur of the moment flurry of excitement. It requires intense planning, recording and evaluation of what various elements of your business’ data tells you. If your business has grown to the point where you can’t handle financial record keeping anymore, hire a bookkeeper or accountant.

Let us know your thoughts by completing the contact form below. Follow us on Instagram @successlifestylemagazine and on Facebook at Success Lifestyle Magazine.

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