How to Manage Your Business’s Money

• Accounting: Keeping track of every penny the business earns and spends
• Billing: Requesting payment that your customers owe you
• Pricing: Determining what customers should pay for your products or services
• Taxes: Money you owe the U.S. government based on your business’s profits

Choose an Accounting Method

• Cash-based: This simple yet effective method lets you record payments as they come in and expenses as they’re incurred, just as you do with your personal checkbook.
• Accrual-based: This is for larger manufacturing operations in which expenses are incurred long before payment for the finished product arrives. Using accrual accounting lets you match up expenses and revenue associated with those expenses, but it’s trickier. Consult an accountant to set up an accrual-based system.

Pick a Software Package

• MYOB® (Mind Your Own Business)
• Peachtree Complete Accounting®
• QuickBooks®
• Quicken®

Pricing

• Cost-based: Calculate your total costs and then add a percentage of profit. Some industries have a standard percentage they tack on to their costs to determine the price of their products or services. For example, advertising agencies generally mark up, or add on additional fees, using a 17.65% multiplier.
• Market-based: Calculate your total costs and then use the going rate, or standard rate, to set your prices. This is often found in consulting and service businesses, where there are many competitors and pricing your services too high will reduce your chances of success. Pricing your offerings in line with what every other business is charging may improve your odds of winning new business. The only time this won’t be true is if you are positioning your business as very upscale, in which case charging above the market rate may actually attract customers.
• Perceived value: Calculate your total costs and then charge as much as you can, typically because there is a shortage of what you’re selling. Perceived value works only as long as demand for a product or service exceeds the supply; once supply catches up, such as when a new shipment of a particular electronic device is shipped, customers will be much less willing to pay above the going rate.

Billing

• Bill customers immediately after completing work, or whenever your contract indicates you can. Including a due date also helps encourage customers to pay promptly, although many businesses today pay 30, 45, or even 60 days after receiving your first invoice.
• Follow up with a second invoice after 30 days. After 45 days, place a phone call to the accounts payable department (which handles money the company owes others) or to your customer directly to ask when a check will be issued.

What to Do When Money is Tight

• Negotiating with suppliers: If you can’t get customers to pay you more quickly, your other option is to try to slow the cash outflow by asking suppliers to allow you to pay them later than initially agreed upon.
• Requesting deposits and prepayment: As you sign contracts with new customers, request a deposit to begin work or offer a prompt-payment discount.
• Tapping your line of credit: If you have a line of credit lined up in case of emergencies, transfer cash into your business account to avoid a temporary shortfall.
• Lining up a loan: If you’re encountering a one-time cash emergency, a loan can replenish your bank account.

Taxes