- While running your firm, you'll deal
with financial activities that relate to cashflow,
financing, and accounting.
Depending upon your comfort level
with accounting and finance issues,
you may choose to do this yourself,
or you may get a service provider to do it for you.
If you're not sure of what you're doing,
seek professional assistance from an accountant.
Open a separate bank account and credit card account
that you'll use solely for business purposes.
Don't comingle your personal and business spending.
Keeping them separate makes it easier
to manage your accounting.
Cashflow tracks and manages money coming in
and money going out.
You'll need to select an accounting software package
that enables you to generate and send invoices,
record payments, and track client accounts.
One of the the biggest reasons
to monitor cash is clients rarely pay
as soon as you invoice them.
Many will pay you on terms like net 60,
which means they'll pay you 60 days
after they receive your invoice.
Some may be net 30.
Others are going to be net 90 or more.
You'll need to bridge these periods
between doing the work and fronting the cash
for travel and salaries while you wait
for payment from your client.
On the cost side, get a good sense
of your monthly expenditures.
Build a budget for things like utilities,
supplies, travel, salaries, and benefits.
Financing is about having access to capital
to fund your operations when cash gets tight,
or when you're looking to invest
to expand your business.
Aside from client payments,
financing activities are your primary source of cash.
Common financing sources are your cash on hand,
loans, and credit cards.
Understand your cost of capital.
That's the interest rate you pay on the money you borrow.
Also know how much capital you can access
in a given period of time.
Be aware of repayment terms.
Those can be punitive if you're not compliant
with the terms of the loan.
Accounting is about tracking all financing activities
so you can accurately file taxes
and analyze your financial performance.
Find good recordkeeping software
and be diligent about tracking expenditures and income.
Those reports will be the basis
for filing your taxes and understanding
how your business is doing from a financial standpoint.
Accounting isn't exciting until you run out of cash.
Stay on top of your finances.
By managing cashflow, financing, and accounting activities,
you'll have your firm on solid financial ground
and be able to track your performance.