Ten Basic Financial Practices Entrepreneurs Must Do!
One important aspect of being an entrepreneur with a successful business is ensuring that you have the business finances in order. As a small business owner, you need to have daily practices in place that will assist one with keeping the business finances in order. Good financial practices that an entrepreneur develops in the beginning phases of the business will ensure that the business stays open. Entrepreneurs have to have a good understanding of their personal finances before starting a business. It is good to have some grasp of the business finances on a regular basis to stay profitable and sustainable as a business.
Here are ten basic financial practices entrepreneurs should do to have a successful business:
Financial Practice #1: Have a good recordkeeping system of the financial documents. The business owner needs to begin keeping good financial records from day one (from the time the business first opens). Good records and record keeping are needed to make future plans for your company and to evolve strategies that enable your business to grow rapidly and be successful in the future and to survive in the present. Source (Page 136) The Entrepreneur & Small Business Problem Solver by William A. Cohen (2006 3rd Edition, John Wiley & Sons, Inc.) The basic requirements of a good financial record-keeping system are as follows:
- The system that you choose for the business should be easy to use and to understand.
- The system has to be very accurate and relevant to the particular business. Accurate means that the record keeping system should not have any errors and conform to whatever standards you have set for the system. Relevant means important to your business.
- The record keeping system should be consistent regarding the standards and structure decided on for the system.
- The system should keep the records in a timely fashion and should always be current.
Financial Practice #2: It is important to have an understanding of Accounting 101. The most successful entrepreneurs do not have any trouble with taking a simple course or class to learn the basics of accounting. When meeting with one’s accountant, an entrepreneur should have a clear understanding of what their accountant is talking about.
Financial Practice #3: Every small business should have a good bookkeeping system. There are special bookkeeping systems set-up for any type of business out there. There are electronic programs like Quick Books that can assist an entrepreneur with keeping the business financial records in good orders.
Financial Practice #4: Small business owners should ensure that they keep their books balanced. It is very critical for small businesses to maintain good financial records and ensure that the financial books are balanced. Here are the most important financial records that must be kept in order and balanced:
- Sales records.
- Cash receipts.
- Cash disbursements.
- Accounts receivable.
Financial Practice #5: The entrepreneur needs to keep track of their personal credit history. It is good for an entrepreneur to get copies of their credit reports from the three credit reporting agencies: TransUnion, Equifax, and Experian. If have bad credit, it is good to meet with a financial counselor to get assistance with setting up a repayment plan for all debt owed. You can get free assistance from free organizations like American Consumer Credit Counseling or National Foundation for Credit Counseling. Depending on the country you live in, there should be organizations to assist entrepreneurs with getting their personal finances in order.
Financial Practice #6: It is always key for an entrepreneur to pay their personal bills and business bills on time. To maintain a good standing as a reputable business, it is good for business owners to pay their bills on time. The entrepreneur needs to understand the importance of paying the business bills on time. Also, the small business owner should set-up a good system that will ensure that the business bills are paid on a regular basis and on time.
Financial Practice #7: It good for every small business owner to have a good system to collect monies owed to it by customers. The main reason for a good collection system is to reduce the time between the sale or performance of the service and the collection of monies owed. Here are the basic steps to follow to ensure that the business gets paid the money owed to it:
- Prepare invoices: The invoices should be prepared promptly, quickly, and accurately. The invoices should be sent out to the customer within two days after being created.
- Send monthly statements to customers: Monthly statements will remind the customer of their account balance, if they are on a payment plan.
- Should include delinquency charges on any past due invoices: A business owner should never be afraid to charge interest or delinquency charges for accounts that are at least 30 days past due.
- Have a system set-up to contact customers who are late paying: The business owner should not allow customer’s accounts to go unnoticed for a long time. It is good to contact customers immediately with delinquent accounts. This is important to ensure that you are able to pursue further collection procedures, if the bill is not paid within a reasonable amount of time.
- Collection letters are good to send to customers with delinquent accounts: Once the account is 15 days past due, it is good to send an initial collection letter to the customer demanding payment. If not paid within 30 days, it is good to send another letter letting the customer know that further action will be taken to collect the money owed.
- Use of the telephone: If the small business owner, has a good rapport with the customer it does not hurt to call them to see what is going on. If you call the customer, maybe you can set-up payment arrangements to pay off the past due amount.
- Use external collection procedures like collection agencies and legal action: If the delinquent account is more than three months past due, it is time to hire a collection agency to attempt to collect the past due monies. If that does not work after three months, it may be time to sue the customer for the delinquent account by way of legal action.
Financial Practice #8: It is good to have your business income taxes completed by a professional accountant. It is always advisable to have a professional accountant complete your income taxes for the business. The accountant will ensure that the business taxes are done properly and will keep the entrepreneur out of tax trouble and legal trouble.
Financial Practice #9: Every entrepreneur should have a clear understanding of their current personal finances and business finances. No small business owner should allow others to have control over the business finances at any time. The business owner should be the first person the accountant and bookkeeper contacts to discuss the finances of the business.
Financial Practice #10: The small business should have a good billing system. It is good to ensure that the business has a good billing system that will send out invoices to the customers on a timely basis.
These are some good financial practices that any entrepreneur should incorporate when starting a business. Having good financial practices will ensure that you stay in business for a long time.
Donya Zimmerman is a business consultant, mediator, and legal professional with over ten years of experience. Donya is also a public speaker and aspiring author. She has a few books in the works that will be published and released in the latter part of 2015. The books will focus on entrepreneurship, small business, and daily devotionals. She is owner of Family & Community Mediation and Business Consulting (FACMBC) based in Baltimore, Maryland and has been in business since 2013. Services provided by FACMBC: Mediation and Conflict Resolution Services; Business Registration Assistance (Limited Liability Company, Corporation, S-Corp, Limited Liability Partnership, etc.); Business Plan Drafting Assistance; Business Certification Assistance (MBE, WOSB, 8A, 501(c) (3), Hub Zone, etc.); and Business Organization Assistance. She is also a contributing writer to the Maryland Daily Examiner Newspaper. Donya Zimmerman has made article contributions to the Simply Inspirational Women in Business Journal for 2014 published by Dr. Cheryl Cottle.
If you are thinking about starting your own small business or non-profit organization do not hesitate to contact me because I can show you how to do so. Contact information: firstname.lastname@example.org; www.facebook.com/FACMBC; www.twitter.com/FACMBC; https://dzimmerman36.wordpress.com; http://www.linkedin.com/in/dzbusconsultantandmediator
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