There are a plethora of variables involved in the success or failure of a small business startup, but the ability to manage the financial responsibilities of owning a business is one of the most important elements of success.
Without proper handling of cash flow, a business can quickly find itself buried in unmanageable debt. The ability to have accessible capital at all times is critical to the longevity of any size business. Take a look at a quick overview of a few helpful financing tips for small business entrepreneurs.
Research the different types of corporations
There are several different choices when branding a small business with the corporation stamp. Branding options heavily affect the financing options of a small business, as well. The two most popular options are the limited liability company (LLC) and the S Corporation. The differences between the several different corporation labels is financial.
Whatever label the company chooses decides how income taxes, social security disbursements, and Medicare taxes will be paid. An LLC is set up in the way that owners end up paying self-employment taxes. When entrepreneurs choose an S Corporation, they receive a salary and are exempt from the hassle of filing self-employment paperwork.
Learn the ins and outs of a financial statement
The financial statement for any company serves a very important purpose. Financial statements are meant to show where the business’s money comes from, where it goes, and what is left after everything is said and done.
There are four main parts that make up a business financial statement:
Balance Sheets: The balance sheets provide information regarding business assets and liabilities.
Income Statements: Income statements show the company’s income for a set amount of time.
Cash Flow Statements: Here is where owners can see their company’s operating, investing, and financing activities.
Statements of Shareholder’s Equity: Self-explanatory.
Build a sizeable cash reserve
As the owner of a small business, entrepreneurs have the weight of financial responsibility… even in times of trouble. There has to be a backup plan in place for emergency situations. Insurance policies can cover only so much. It is wise to maintain a stash of available capital for a rainy day.
Diversify financial allotments
It may seem a bit counterproductive, but diversifying finances can lead to a significant boost in the production and profit. In the unfortunate event that the company’s original market runs dry, diversification will provide other options.
Enlist the help of software tools
Small business owners have the tendency of overworking themselves. The capability of software tools today has far surpassed that of technology ten years ago. It is worth the time spent researching the right program for the company’s best financial interests.