Start Managing Your Online Business Financials
A description of the building blocks of online business financial management
LEVEL 1 ARTICLESTARTING YOUR ONLINE BUSINESS
When it comes to financial management for an online business, there are a few key things you need to keep in mind. First and foremost, you need to make sure that you have a clear understanding of your income and expenses.
How to track the income and expenses of an online business?
There are a number of ways to track the income and expenses of an online business. One way is to use a spreadsheet application like Microsoft Excel or Google Sheets. Another way is to use accounting software, with two most user-friendly ones being QuickBooks and Xero. These are available across a number of countries, do not require specialist knowledge of accounting and offer helpful training videos to get you started. Are there free versions of Quickbooks and Xero? Yes, there are free versions of QuickBooks and Xero. You can also find free accounting software options by searching the internet. Whichever method you choose, make sure that you update your records regularly so that you have an accurate picture of your finances. It is a great idea to balance all of your transactions at the end of every month, as well as make use of any reports your accounting software offers. This will allow you to develop a budget and track your progress over time.
If you dread the idea of inputting a slew of boring numbers, try to think of it as an opportunity to show-case your business to a potential buyer in the future. If you keep your financial records up-to-date from the very start, it will be significantly easier to organize them prior to a potential sale, and it will show your buyer that you've taken good care of your business.
What are the most useful financial reports for a business? There are a number of financial reports that can be useful for a business.
However, the most useful ones are typically the balance sheet, income statement and cash flow statement.
The balance sheet provides an overview of your business’s assets and liabilities, as well as your equity. This is important in understanding your financial position and can help you make informed decisions about how to grow your business.
The income statement shows your business’s revenue and expenses over a period of time, allowing you to track your profitability.
The cash flow statement tracks the movement of cash in and out of your business, highlighting any areas where you may need to improve your financial management.
All of these reports can be generated using accounting software, such as QuickBooks or Xero. If you are using a spreadsheet application like Microsoft Excel or Google Sheets, there are templates available that can help you get started. Budgeting is an important aspect of financial management for an online business. Just like with any business, it’s important to have a clear understanding of your income and expenses so that you can create a realistic budget. There are a number of free online tools that can help you with budgeting, such as Mint.com and You Need a Budget (YNAB). Xero and Quickbooks also offer budget-creation options within the software.
How will you know how much money to allocate in your budget and what will you allocate it for? This will depend on your specific business and what your income and expenses are. (Pro tip: have a look online at example budgets of the specific online business type you are planning on running. Chances are, your categories and approximate percentages of how much you will be spending in each category will be similar.)
In general, there are a few key things to keep in mind when budgeting for an online business:
First, you need to make sure that you have enough money to cover your basic living expenses, if you are planning on using your online business to support your livelihood. This includes things like rent or mortgage payments, utilities, food, transportation, and any other necessary expenses.
Second, you need to allocate money for your business expenses. This includes things like website hosting, domain names, online advertising, and any other costs associated with running your business.
Finally, you need to set aside money for taxes. This is important because if you don’t pay your taxes, you can end up owing a lot of money to the government.
Once you have covered these essentials, you can start to allocate your budget towards other things, such as savings or investments.a