Keeping your business’ finances on solid ground requires more than just maximizing sales and minimizing expenses. There’s a whole lot that goes on between money coming in and going out. If your financial management processes aren’t focused and efficient, you could lose a lot of time and money due to errors and missed opportunities.
Here are a few areas I recommend evaluating and updating when you review your financial management strategies.
1. Establish rigorous payments tracking
When a business is just starting out, the volume of payments in and payments out might be relatively small. In those early days, it’s probably easy to know how an invoice went from being submitted to being paid out. But once volume starts to increase and multiple parties get involved, nailing down procedures and tracking is vital.
If too many people have the ability to take part in financial processes, an error can be a nightmare to figure out. What if a wire transfer is sent to the wrong account? Not only does the intended recipient remain unpaid, but now another party needs to return those funds. Without adequate tracking systems, it can take significantly longer to find out who made the error and determine how to correct it.
To combat this, I highly recommend using software that records essential details of who performs each action and when. Wherever possible, businesses should use individual logins as opposed to a main account that multiple people can access.
While it’s essential to track who takes the final action of sending money, it’s also a good idea to track approvals. There should always be another set of eyes on any substantial outgoing payment, and having electronic approval tracking emphasizes that responsibility. If approvers are on record as signing off on requests they didn’t review, there needs to be accountability for that.
2. Automate and schedule wherever possible
Technology is by no means infallible. Entirely removing human oversight from financial systems is a recipe for disaster, but that doesn’t mean technology can’t help reduce errors.
When you automate payments, they’re more likely to be paid on time and not get forgotten. If you find out about a payment that needs to go out in two weeks, you can immediately schedule that payment. If you don’t, you’ll need to create a reminder on your calendar for two weeks from now and then send the payment manually. Scheduling an automated payment saves you that extra step, which is important given that each process component is an opportunity for something to go wrong.
That’s not to say that plain Jane calendar reminders can’t be a way to make financial management more efficient. Digital calendar functions can be immensely helpful for business processes.
Just being reminded to perform certain tasks on a regular basis can boost income. If you have a high-yield savings account for excess cash, for example, you can use recurring reminders to check balances and upcoming expenses on certain dates. On those predetermined days, unneeded cash can be transferred out of checking to bring in more interest. Without that recurring calendar reminder, the task could be pushed off, and interest income could be lost.
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3. Check major business moves against the tax code
When planning major purchases, adding employee benefits or enacting any other substantial business changes, you presumably have a good reason for doing so. But before you charge ahead with those changes, you should first see whether there are any tax-related benefits you should be taking advantage of.
For example, perhaps you are planning on renovating a 30,000-square-foot commercial property. You might make the necessary updates to better suit your business purposes and not give the design further thought.
If you do that, you might miss out on the opportunity to claim the Energy-Efficient Commercial Buildings 179D tax deduction. That would be a shame — and now an even bigger one, given recent legislative developments. With the Inflation Reduction Act of 2022 in effect, the deduction has almost tripled to a maximum of $5 per square foot. Tweaking your renovation design to satisfy the deduction’s requirements could translate into a potential $150,000 deduction.
There are a surprising number of tax deductions and credits available to businesses. Failing to consider major changes and expenditures in light of those opportunities can put you at a disadvantage over companies that are doing so.
Family leave is another example. Maybe your company offers paid maternity leave but hasn’t modified the policy to comply with the requirements of the Section 45S employer credit. Simply bumping up the paid leave you offer from 40% of normal wages to the required 50% minimum could earn you this valuable credit. But if you don’t know the Section 45S credit exists, why would you take it into consideration when creating your policy?
So before making major policy changes or expenditures, check to see whether minor revisions to your plan could yield valuable tax benefits for your business.
Avoiding costly mismanagement
Good financial management strategies lay the foundation for making income work as efficiently as possible. At least with planned and incurred expenses, there is theoretically a return on investment.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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