Feeling freaked out by the idea of managing business finances and creating a financial plan?
You're not alone. That's how most small business owners and startup founders feel, especially those without financial backgrounds.
The good news is that you can skip the lengthy guides full of the terms you don't understand as we've gathered everything you need to run your small business effectively, financially-wise.
And to make it even easier for you, we've summed up all the essential information in a cheat sheet you can download below and keep handy whenever you want to quickly check something.
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Here is a proven formula for managing your business finances in only seven steps.
The first step toward small business financial management is making a financial plan, which can be in a simple Google Sheet at the beginning as you just need a starting point and can expand it over time.
Creating a financial plan starts by evaluating and understanding your current position and your financial model.
Then, choose the key performance indicators you want to track over the next period. Choosing the right metrics depends on many factors, such as your business model, your current goals and revenue streams. You can do this manually but it'd be much faster with the right financial planning software tools.
Here are the five essential elements to include in your business plan:
Not sure what the most important metrics are for your business? Don't worry! Our dashboard selects the main KPIs you should track based on your startup financial model.
See also: 31 agency metrics & KPIs or 15 key SaaS metrics
Creating a legal entity and getting a business bank account is crucial for effectively managing your business finances for several reasons, such as legal protection, separation of business and personal finances, tax compliance and others.
We recommend setting up a new account at least two months before you even start making or spending any money on your new business. If you think you can mix your business and personal funds, that's not a good idea, and we strongly discourage you from doing so.
Having a separate account for business transactions (and eventually a separate business credit card) promotes clarity, transparency, better financial management and, in the end, it's simply more professional.
These tools can help you when creating a legal entity:
And if you want to open a business account remotely and quickly, tools like Mercury can help you.
Precise keeping of financial records is essential to the success of any business, no matter how big or small. If you're wondering when you should start recording your transactions, the answer is – as soon as your cash flow starts.
Believe us, you don't want to be doing that retrospectively down the line when your finances become even more complex.
Before you know it, it'll be time to talk to investors, and a transparent financial record is the only way to build trust with them.
Here are the main things you should track:
As a small business owner, you can track your transactions on your own during the first year, but it’s much easier with good accounting software like Xero or QuickBooks.
Yet, after the first year, it's probably time to get an accountant. Don't worry, there's no need to get a full-time accountant, as that's one of the most common outsourced financial services.
Also, don't forget about tax payments. When you download our cheatsheet, you'll find tax deadlines there, so you don't miss any tax obligations this year.
Taking care of your business's cash flow can make your business stronger during unpredictable times. It lets you adjust quickly to things like price rises or problems with getting supplies. It also helps to reduce financial risks, like missed or late payments.
Cash flow management consists of two aspects you should check on a weekly and monthly basis:
Tracking all your cash means meticulously tracking both inflows and outflows or the money that goes into and out of your business:
When it comes to runway and burn rate, there are simple equations to help you calculate them.
Runway is the amount of time your startup has until it exhausts all its available financial resources and needs additional funding.
Burn rate, on the other hand, represents the rate at which a startup spends its available cash over a specific period, usually expressed monthly. It shows how quickly a company is using up its financial resources.
To calculate the burn rate, subtract the total money inflow from the total money outflow over a specific period, then divide the result by the number of months in that period. And to calculate the runway, divide the current cash balance by the net burn rate.
Don't panic, as there's no need to do it manually.
With Fuelfinance's automation feature, you can easily calculate the burn rate and we've created a specialized calculator for calculating the runway.
Leave your email in the form below, and you'll receive your runway calculator in no time!
As a new business owner, it's essential to understand that generated cash isn't the same as revenue! Cash is the actual money your company receives, while revenue is the total income earned from sales or services, which may include amounts owed but not yet received in cash.
Revenue can be recognized either before or after receiving the payment, but only when goods are delivered or services provided.
For example, if Uber charges a rider $10 and pays the driver $8, the company would recognize $2 ($10-$8) as its revenue from that ride only after they have provided the riding service, even though it doesn’t necessarily mean Uber has received $2 in cash.
Revenue recognition varies based on your business model, but Fuelfinance is specialized for different industries, including SaaS, professional services etc., and our team can act as your fractional CFO and help to make sure you're doing everything correctly.
Another way of keeping track of your business's profit is by applying accrual accounting in managing small business finances.
This report doesn't include cash, as it recognizes revenue and expenses when they are earned or incurred, regardless of when cash is exchanged.
Here's how accrual accounting works:
Although it may seem complex at first, recording revenues and expenses on an accrual basis has many benefits, such as:
Fuelfinance allows you to generate three main financial statements (P&L, cash flow and balance sheet) based on the accrual method of accounting with only a few clicks.
See also: Accounting vs FP&A
Financial plans aren't perfect, and mistakes and unexpected circumstances can happen. That's why skipping Plan/Actual analysis isn't a good idea – it acts like a detector for errors, helping you correct any mistakes.
New business owners might not always be completely realistic when creating their first financial management plan and might overestimate expectations. However, Plan/Actual analysis helps you stay honest with yourself and grounded. It reveals the real cause and effect of your past actions.
Although Plan/Actual analysis can be done on a day-to-day basis, weekly, monthly and quarterly, at the very beginning of your managing finances we recommend doing it monthly.
Here's how to do a financial analysis to compare plan vs actual in three steps:
This analysis is a valuable tool to get insights that will help you be more realistic with your plans and your business finance management.
After reading this article on managing small business finances, you'd probably want to have all the information in one place – summarized, visually friendly and easy to understand.
Since we want to help you get control over your business finances in no time, we've created a cheat sheet with all the necessary information to help you reach your business's financial health.
All you have to do is leave your email in the form below and we'll send you our cheat sheet for free!
At Fuelfinance, we take managing your small business's finances seriously, and that's why we've broken down the entire process into easily understandable and doable steps.
Designed with startup founders and small business owners in mind, our platform provides a flexible and customizable alternative to rigid small business financial planning tools, ensuring adaptability to varying business needs.
Its user-friendly interface and unlimited expert support from our finance team make it one of the best FP&A software for founders with limited background and expertise in finance.
Here are its key features:
Also, our tool includes a variety of third-party integrations with other financial management solutions and useful apps, including QuickBooks, Stripe, Gusto, Wise, Brex, HubSpot and others. If you're interested in learning more about the tools we recommend, check out these best QuickBooks alternatives.
However, that's not everything! We've launched a new solution for pre-seed-stage startups and small business owners who want to get a clear picture of their finances without spending a dime!
Our free Bootstrap is for you if:
Here's what you'll get in our Bootstrap:
Managing any kind of finances, whether it's small business finances or personal expenses, can often be overwhelming. That is why many founders often delay dealing with them until it may be too late.
That's where Fuelfinance steps in – it's a user-friendly financial tool designed to automate this process for you, delivering custom real-time financial information.
If you want to be your own financial expert, we offer you Bootstrap – an easy and safe way to manage your finances!
However, if you want an expert team by your side, you can relax and stop worrying about your small business's financial well-being with our main product Fuelfinance.
Book a 30-minute call with us and experience financial excellence at its best!
The most important aspects of managing your business finances are budgeting, financial planning and analysis. You should also track income and expenses from day one and create financial statements on a regular basis.
You can organize business finances by establishing accounting and bookkeeping systems, using financial management software or hiring a professional to do it for you. You should also review financial statements and reconcile accounts on a regular basis.
You can educate yourself through financial books, courses and resources available online, but always double-check the source of information. If you're looking for a comprehensive and well-organized financial knowledge base written in a language everyone can understand, check out our Resources section for useful guides, templates, videos and case studies – and all that for free!
