Learn practical tips for managing your small business finances, from budgeting to cash flow, taxes, and more in this guide.

Starting a small business is exciting …until you run into financial roadblocks.

The expenses. The cash flow. The payments. ..there’s just so much to juggle. If left unchecked, these financial challenges can pile up fast and, before you know it, start straining your business and slowing down your growth.

But here’s the good news.

You don’t have to be a finance expert to manage your business finances effectively.

With the right strategies, you can get a handle on your money, avoid common business finance management mistakes, and set your enterprise up for success.

Let’s dive in. 

1. Separate Business and Personal Finances

One of the best things you can do from day one is to keep your business and personal finances separate. 

Mixing the two can lead to tax complications and make tracking your business’s performance harder.

Besides opening a business bank account, set up a separate personal account to make tracking expenses easier. 

You can use a free tool like Wave to automatically monitor and categorize expenses and set alerts for large transactions to catch any unusual spending quickly. 

Furthermore, dedicate a “reconciliation day” monthly to match your bank statements with your records. This will allow you to spot any mixed expenses that must be fixed.

Surprisingly, around 25% of small business owners don’t have a dedicated business bank account, which can lead to costly errors and IRS issues. Don’t be part of this statistic.

2. Set a Realistic Budget

A budget is like a roadmap—it shows where your money should go and helps prevent overspending. 

The keyword here is realistic. You see, it’s easy to overestimate income or overlook certain expenses, so your budget should be something you can stick to. As Dave Ramsey says, “A budget tells your money where to go instead of wondering where it went.”

How do you create a realistic budget?

Use the 50/30/20 rule to guide your budget. Here’s how it works — allocate 50% for essentials (rent, payroll), 30% for variable costs (marketing, materials), and 20% for growth or unexpected costs. 

Also, review actual vs. projected spending every quarter. If you notice that marketing expenses consistently exceed the budget, adjust those expectations.

Free budgeting tools like Mint or a QuickBooks setup can make it easier to monitor your spending patterns.

3. Track Cash Flow Regularly

A study from the U.S. Bank found that 82% of small businesses fail due to poor cash flow management. 

Cash flow is the money moving in and out of your business. Monitoring this flow helps you make better financial decisions, avoid overdrafts, and ensure you have enough cash to cover your obligations.

Set a weekly “cash flow review” time to assess inflows and outflows, even if it’s just 15 minutes. 

In addition, deposit a portion into cash reserves during high-earning months to help cover any gaps later. Moreover, if you notice dips during certain months, consider negotiating with suppliers for flexible payment terms or discounts. 

Speaking of monitoring your cash flow, templates or software like QuickBooks or Xero can help automate tracking.

4. Know Your Break-Even Point

Your break-even point is the revenue you need to cover your costs. 

Knowing this number helps you set the right pricing, determine when your business will start making profits, and plan for growth.

You can calculate your break-even point by dividing your fixed costs by the gross margin of your product or service. 

Beyond this, set a secondary “profit margin break-even” goal to cover unexpected expenses. If you sell multiple items, break them down by product so you know how many units you need to sell to hit profitability.

5. Track Your Expenses

Effective business finance management for small business owners includes regularly reviewing expenses to find savings opportunities. Small costs can chip away at your profitability without you even noticing.

Therefore, set up expense categories in your accounting software that reflect your main spending areas (like marketing, rent, and supplies). 

Review each category monthly to look for patterns. For instance, if subscription costs are creeping up, consider which services provide real value and cancel those that don’t. 

According to a CB Insights survey, 29% of small businesses cite running out of cash as a reason for failure, often due to unchecked expenses.

6. Establish an Emergency Fund

Small businesses need emergency funds as much as individuals do. 

Thus, your finance management plan should include some cushion for unexpected expenses, like equipment repairs or sudden sales drops.

Start small, and if necessary, use the “round-up” method. This strategy allows you to round up each sale by a dollar or two and transfer the extra into an emergency fund. 

In addition, Aim to save 3-6 months of operating expenses over time and keep it in a high-yield business savings account for easy access and a little extra interest. 

This fund gives you peace of mind and stability to handle financial surprises.

7. Invest in Accounting Software

Businesses using accounting software reported a 15% reduction in time spent on accounting tasks, giving them more time to focus on growing their business.

Choose software that integrates with your Point of Sale (POS) or Customer Relationship Management (CRM) solution to simplify data flow. 

In addition, spend an hour each month reviewing key reports like profit and loss statements, cash flow statements, and expense summaries to monitor your business’s financial health.

8. Understand Your Tax Obligations

The National Federation of Independent Business (NFIB) reports that small businesses face an average effective tax rate of 19.8%, underscoring the importance of tax planning.

Taxes are a part of life, and for small business owners, they’re non-negotiable. Missing deadlines or not setting enough aside can create major headaches and penalties.

A good business finance management plan includes setting aside a portion of your income for taxes, such as 15-30%, depending on your revenue and tax bracket. 

Also, schedule quarterly meetings with a tax professional or accountant to help you understand your upcoming obligations. This routine makes tax season much easier and allows you to avoid the panic of scrambling to find cash for taxes.

9. Set Up a Payment Policy for Customers

Late payments can create cash flow issues and make planning difficult. On the other hand, establishing payment terms ensures customers know what’s expected and can prevent awkward follow-ups.

Therefore, consider adding payment terms like “Due in 30 days” on your invoices and introducing a late fee for overdue payments. You can also offer a small discount for early payment (like 2% off if paid within 10 days) and include a late fee for overdue payments. 

In addition, be sure to offer online payment processing options to make it more convenient for customers to pay on time. 

10. Pay Yourself a Salary

Reinvesting everything into the business can be tempting, but paying yourself a regular salary helps establish stability. 

Treat your salary as an essential expense and transfer it to your account on the same date each month. 

Even if modest, paying yourself regularly keeps personal finances separate from business funds. 

Pro Tip: Review your salary quarterly based on business performance and gradually increase it as your business grows.

11. Plan for Retirement

As a small business owner, it’s easy to focus only on immediate financial needs and overlook long-term goals like retirement.

Fortunately, there are several retirement savings options tailored specifically for business owners. 

For example, a SEP IRA (Simplified Employee Pension) allows you to contribute a portion of your income each year, with higher contribution limits than a traditional IRA. This makes it an excellent choice for high-earning years. 

In addition, a SIMPLE IRA (Savings Incentive Match Plan for Employees) offers a solid way to save, especially if you have employees, as it includes matching contributions. 

Another option is a Solo 401(k) for self-employed individuals without employees. This plan allows employer and employee contributions, enabling you to save more aggressively if your business finances permit.

12. Leverage Technology to Find a Financial Advice 

75% of small business owners who partner with financial advisors report better financial planning and stability.

And, technology has made finding the right advisor much easier. Gone are the days of scheduling endless in-person meetings and guessing if someone’s a good fit.

FINNY, for instance, uses AI to match you with advisors specializing in small business finance management. This way, you can connect with someone who truly understands your unique challenges and goals without the hassle of searching and vetting them on your own.

The Bottom Line

Good business finance management is about building habits and staying consistent. 

These 12 tips cover the basics of financial management, providing a solid foundation for small business owners who want to take control of their finances. 

Implementing these strategies and consulting with professionals when needed can better prepare you to build a thriving business.

And if you want to connect with a financial advisor real quick, FINNY is the place to go!