Running a small business is exciting, but keeping up with the financial side can feel overwhelming. Whether you’re just starting or have been in business for years, solid accounting practices are the key to staying profitable, reducing stress, and avoiding costly mistakes. This guide will walk you through the essential steps to keep your business finances in order, providing clear, actionable advice to help you stay on top of your numbers and make informed financial decisions.
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Separate Business and Personal Finances
One of small business owners’ biggest mistakes is mixing personal and business expenses. This can cause bookkeeping headaches and potential tax issues. Without clear separation, it’s harder to track profitability, claim deductions, and protect yourself legally. To stay organised:
- Open a dedicated business bank account. This makes it easier to track income and expenses and simplifies tax preparation.
- Use a business credit or debit card for all expenses. Avoid using personal funds to cover business costs whenever possible.
- Keep detailed records of any personal funds used in the business. If you must use personal money, properly document it as an owner’s investment or loan.
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Stay on Top of Record-Keeping
Good record-keeping isn’t just for tax time—it helps you track your financial health year-round and ensures you’re making data-driven business decisions. Develop a system that works for you:
- Keep digital copies of receipts and invoices. Paper records can get lost or damaged. Use cloud storage solutions or accounting apps to store and categorise them.
- Track income and expenses regularly (at least monthly). This helps identify spending trends, ensures timely invoicing, and prevents cash flow problems.
- Use accounting software to automate tracking and generate reports. Tools like QuickBooks, Xero, or Wave can simplify bookkeeping, categorise transactions, and help with tax preparation.
- Reconcile bank statements every month. This ensures accuracy and helps detect any discrepancies or fraudulent transactions.
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Understand Your Cash Flow
Cash flow—the money coming in versus going out—is the lifeblood of your business. Many small businesses struggle because they don’t monitor it closely. Running out of cash is one of the biggest reasons small businesses fail. To maintain positive cash flow:
- Set payment terms that encourage timely payments from customers. Consider offering small discounts for early payments or charging late fees for overdue invoices.
- Send invoices promptly and follow up on late payments. Automate invoice reminders through your accounting software.
- Avoid unnecessary spending, especially on non-essential business expenses. Prioritize investments that will generate revenue.
- Plan for seasonal fluctuations. If your business has slow periods, budget accordingly to ensure expenses are covered.
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Budget for Taxes
A common pitfall for business owners is underestimating taxes. Instead of scrambling when tax time comes, plan ahead:
- Set aside a percentage of income (typically 25-30% minimum) for taxes. This prevents financial strain when payments are due.
- Know what deductions you can claim. Common deductions include home office expenses, business meals, travel, equipment, and marketing costs.
- Keep detailed records of all deductible expenses. In the event of an audit, proper documentation is essential.
- Work with an accountant to maximise your tax benefits and stay compliant. They can help you navigate complex tax laws and identify additional deductions.
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Track Profitability, Not Just Revenue
Many business owners focus on revenue but forget to consider profit margins. It’s not just about how much you make but how much you keep. Regularly analyse:
- Your cost of goods or services sold. Understanding your costs helps you set the right pricing strategy.
- Overhead expenses like rent, utilities, and salaries. Look for areas where you can cut costs without sacrificing quality.
- Pricing strategies to ensure your margins are healthy. If your prices are too low, you may struggle to cover expenses and grow.
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Pay Yourself Properly
If you’re a business owner, it can be tempting to reinvest every dollar back into the company. But paying yourself fairly is essential for both personal and business stability. Consider:
- Setting up a consistent salary or owner’s draw. This ensures you receive regular income while maintaining business stability.
- Ensuring business finances can support your pay without affecting operations. Monitor cash flow and profitability before making withdrawals.
- Consulting an accountant to determine the best way to compensate yourself based on business structure. Different tax implications apply to sole proprietors, partnerships, trusts, and companies.
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Prepare for Unexpected Expenses
Emergencies and unexpected costs happen, and having a financial cushion can be a lifesaver. The cyclone activity we just had in South East Queensland should be a firm reminder of how important this is. Build an emergency fund by:
- Setting aside a small percentage of monthly revenue. Even a little saved each month can add up over time.
- Cutting unnecessary expenses when possible. Review subscriptions and non-essential spending regularly.
- Planning for seasonal slowdowns if applicable to your industry. Ensure you have enough reserves to cover lean months.
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Work with a Professional Accountant
While DIY accounting software can help, there’s no substitute for professional advice. An accountant can:
- Ensure your books are accurate. Errors in bookkeeping can lead to costly mistakes.
- Help you save on taxes and maximise deductions. They can identify tax-saving opportunities you might miss.
- Offer strategic financial advice to help your business grow. Whether it’s expansion planning, budgeting, or financial forecasting, an accountant is a valuable resource.
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Create a Financial Plan for Growth
Long-term business success requires a clear financial strategy. Consider:
- Setting revenue and profit goals for the following year. Outline specific milestones to track progress.
- Identifying investment opportunities. Whether it’s hiring new staff, expanding services, or upgrading technology, plan for future growth.
- Regularly reviewing financial statements. Monthly or quarterly reviews help you stay informed and make data-driven decisions.
Staying on top of your business finances doesn’t have to be overwhelming. You can set your business up for long-term success by implementing smart accounting habits now. Whether it’s keeping clean records, managing cash flow, or working with an accountant, small steps can make a big difference.
Taking control of your finances means more than just staying compliant with taxes—it’s about understanding your business’s financial health, making informed decisions, and positioning yourself for growth. The sooner you put strong accounting practices in place, the more confident you’ll feel in your business journey.
If you need expert accounting support, VBA is here to help. Our team specialises in helping small business owners like you take control of their finances and focus on what they do best. Contact us today to discuss how we can support your business and help you achieve financial peace of mind!
At VBA we specialise in strategic tax advice, offering tax and financial reporting for individual income earners, family businesses, tradies and construction companies.
Victor Bimrose Accountancy Pty Ltd (ASIC No. 1259423) ABN 53 010 957 294 is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361.
General Advice Warning: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
