Financial Management for your Small Business

As the owner of a small business, you don’t need to be told that cash is king.  The working capital that your business has is the lifeblood of the company, and even the smallest financial mistake can become a huge problem in the future. So, what are your options?  Here are a few important things to consider when deciding how your company’s money will be managed.

Handling things on your own

While it isn’t impossible, it is definitely a challenge to handle your company’s finances on your own.  There is a lot more that goes into it than just paying your employees, bills, and vendors on time.  You need to worry about taxes, fees, licensing, and a number of other issues.  However, if you are a hands-on type of manager and must handle things on your own, consider some of these options:

  • Use a credit union.  You might find that credit unions are more sympathetic to the needs of small businesses than a big bank.
  • Hire a consultant.  A mentor that knows all about small business finance can help you a lot, particularly when you are just starting out.  Hiring a consultant can help to point you in the right direction.
  • Invest in accounting software.There are a lot of options out there, so do some research before you buy.
  • Hire a bookkeeper.  This will help with managing your accounts payable and receivable, as well as balancing your budget and other financial issues.
  • Get an accountant.  If you aren’t a tax expert, you will need an accountant.

Setting up a corporation

In an effort to make sound financial choices, you might consider setting up your small business as a corporation, or a limited company.  In this type of company the liability of the owners is limited to what they have got invested in the business.  There are a number of benefits to setting up a corporation including the fact that you will have less personal liability, you will enjoy a number of tax advantages, it is often easier to get start-up and later funding, andit may be easier to sell the business down the road.  However, it is important to remember that setting up a corporation can be expensive at the start as well as time consuming later on.  If it is something you think you might be interested in doing, keep the following in mind:

  • You will need a corporate name.
  • You will need to choose a state in which to incorporate.
  • You will need to decide on what type of corporation you prefer.
  • You will need to get a certificate of incorporation.

Using an umbrella company

While starting a corporation will definitely allow you to have control over your company, it isn’t for everyone.  Many small business owners decide to use an umbrella company instead.  An umbrella company is one that acts as the employer for a small organization that doesn’t want to – or can’t – handle the issues that come with proper financial management, human resources, and the other difficult parts of running a business.  The overall benefits of using an umbrella company include the fact that they are easy to use, they will handle all tax issues, most are available on both a long-term and short-term basis, and there will be very little paperwork for you to have to deal with.  However, as with anything else, there are also some disadvantages.  Umbrella companies take the control away from the owner of the business and, in some circumstances, could cause a minor delay in the cash flow.  That aside, if an umbrella company sounds like a good solution to you, you will want to consider these issues when you get set up:

  • Do you trust the umbrella company to represent you and your services?
  • Would you want someone else handling your company’s financial issues?
  • How much freedom do you want to pursue other aspects of your business?
  • Have you heard of the umbrella company you are considering?

If you are comfortable with your answers to these questions, then using an umbrella company may be the right solution for your business’s financial management needs.

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