Small Business Money Management

he most daunting task for many home-based business owners is managing business finances. Poor financial management can wreck any size of business, with Enron being the best-known example. Without a sound financial management plan, even the best selection of home-based businesses has a high risk of failure. Before you do anything else for your business, take the essential steps to managing the money end of your business and you have a far better chance that your business will be a profitable one.

An essential step toward sound business finances management is to keep your business and personal finances separate. Open separate bank accounts for your business, so you can know what liquids assets belong to your business and what belong to you, personally. People who combine business and personal accounts often end up overdrawing, especially if you share a joint checking account with your spouse. He or she may not have recorded a purchase or payment in the checkbook register and, you, happy as a clam about your profits, just paid off a huge supplies bill. Your check bounces. Your supplier is not pleased. You have overdraft charges, further depleting your checking account. Your credit score and reputation are both damaged. This mistake will not happen if you keep your business and personal funds in separate accounts.

To simplify your business bookkeeping, you may want to establish more than one bank account. For instance, have one for Accounts Receivable, into which incoming revenues are deposited, and an Accounts Payable from which your expenses and other business debts are paid. Having AR separated from AP lets you see exactly what you have coming in from which customers and what you have going out, to suppliers, and service providers, without you having to pore over the checkbook register and bank statements when you are balancing your business account. Set up the accounts so that a certain percentage of your income is automatically transferred into your AP. With online banking widely available, you can easily transfer necessary funds from one account to the other.

Manage your business finances as conscientiously as possible. Throughout the year, keep your business funds for business use, and at the end of the year, you may pay yourself a well-earned bonus!