Whether you are new in business or an old timer, it is important to make sure that your finances are in order. Especially with a home business, you have to be careful not to mix personal with business finances. Of course, the same problem can hit a personal corporation with a commercial office, or larger businesses. The key point is to keep your books straight. Many home-based businesses are launched using personal loans from credit cards to home equity loans. If your books are not kept carefully, to separate what is actually income or profit, it can be difficult to know just how well your business is doing. What are your real business expenses? This becomes important when you are filing your taxes and you have to decide what legitimate deductions you have. Your tax deductions should be such that if you are audited by the IRS, you can back them up. If you want to get a loan from a bank or equity investors, a clear statement of your business’ finances becomes even more important. 

    If your business records are clear it becomes easier to file your taxes. Make sure your taxes are as straight forward as possible, to avoid getting on the radar screen of the IRS. If it is possible at some point to sell your business, good business records are also helpful. On a more practical level, good books will make it easier to make business decisions and see what works and what doesn’t. If you are using personal credit to pay a bill or cover a shortfall, you need this clearly recorded. Otherwise, you may think your business is doing much better than it is. Personal credit can create a false rosy picture, until you have to pay the bills. Likewise, large personal expenses covered with business money can make things look worse than they really are. You want to be able to read your balance sheet quickly. What are your liabilities and assets, what is your equity and debt? Debt can conceal losses by providing quick cash, but debt has to be reduced. Another thing that has to be monitored on a regular basis is cash flow, since to keep your business going, cash is king. Many businesses get a factor to get quick cash for their accounts receivable, even though this involves a discount of the account receivable payments.

     Likewise, for long term accounts, the accounts receivable can be broken up by week or several weeks to avoid a large bill or a long delay of payment. Alan S. found it was reassuring to sell his accounts receivable to a factor bank and get quick cash. Then he could quickly produce more goods and fulfill other orders. Factor banks can also do your accounting for a small percentage fee. Many businesses in the garment trade use factor banks. Likewise, it is great to get quick payments online by credit card. It costs 3-percent or so, but in this case, time really is money.

     Seasonal variations of sales in various businesses can create deceptive outlooks. Many experts encourage the use of accrual-basis accounting in order to get a better average picture of the state of the business. At the same time, you need to keep an eye on immediate cash flow and cash crunches. Look carefully at your expenses. What are fixed expenses and which change over time? When you have an advertising budget, try to get a real idea of how effective your advertising expenses are in producing sales. Do more people get on your website, or come into your store, if you have one?

     Finally, look at the practical problem of getting paid in a timely fashion. When you produce an order and ship it, if you are not paid in advance, you are giving the customer credit. Many invoices are paid late. Work on your collection process, and be sure that your invoices look as official as possible. You can offer discounts of a couple of percent for quick payment, within a couple of weeks.