Accounting for Small Businesses: A Comprehensive Guide to Financial Management


small business finances

If you’re unsure about your tax obligations, you may want to talk to a professional accountant or tax expert for advice. The IRS encourages small business owners to maintain proper documentation for expenses, such as receipts showing the amount spent, the date, the payment method, and what was purchased. SBICs are privately owned and managed investment funds licensed and regulated by SBA. They use their own capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses. Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money.

Understanding the Basics of Financial Planning for Small Businesses

While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch. A business line of credit or business credit card can be a good option for short-term financing. For funding larger projects or business needs — like a renovation, equipment, or new marketing campaign — a business loan might be the way to go. If you think you’ll need plenty of credit over the next few years, you may want to give OnDeck a look.

small business finances

Start with the required financial documents

The easiest way to get a small business loan may be through online lenders instead of traditional banks because borrower requirements may be more flexible. With an online lender, you may be able to quickly prequalify and get funding as soon as the same business day as long as you meet eligibility requirements. A personal loan can be a good option to fund your business if you don’t have sufficient revenue or time in business to qualify for a business loan.

Best for Robust Financing Options

Leveraging generative AI to support small businesses is a strategic motion for banks looking to differentiate in a competitive market. By offering tailored AI solutions, banks can help small businesses overcome technological barriers, improve business operations and grow. This can not only enhance customer loyalty but also open new revenue streams and strengthen the bank’s position as a key partner in the success of small businesses.

small business finances

Funding Programs

For example, if your business has strong qualifications but prefers an expedited process, Funding Circle is a great option for traditional term loans. For businesses that want a flexible line of credit, Bluevine, OnDeck and Fundbox each offer competitive products. These institutions, in particular, are a great resource for small-business financing non-cash interest expense because they often have a strong interest in economic development in the community. If you want to avoid taking out a business loan, or simply can’t qualify for any debt financing options, there are several ways to fund your business that don’t require debt. Bank loans tend to carry the lowest interest rates, but they can be hard to qualify for.

How to get venture capital funding

Kabbage also offers business lines of credit up to $150,000 and online loans in amounts from $500 to $150,000. Having the chance to have lenders compete for your business is the best way to make sure you get a small business loan with the best rate and terms you can possibly qualify for. We chose Lendio as one of the best loan comparison sites based on the fact that they let you compare loan options from more than 75 lenders in one place, more than other marketplace sites. You can also have your loan funded in as little as 24 hours, which can be a major boon for business owners who need cash fast.

small business finances

It’s a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges. This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise. Grants are essentially ‘free money’ often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors. Supply chain disruptions and volatility have impacted retail, restaurants, and healthcare.

Getting a small business loan may prove more challenging than other financing options like business credit cards. Although qualification requirements vary by lender, most lenders typically look at the business owner’s personal credit score and the business’ annual revenue. Many lenders require a minimum personal credit score of 600 to 660 and annual revenue between $100,000 and $250,000.

  1. Investopedia compared more than 20 of the top small business loan lenders based on their loan products, rates, fees, eligibility requirements, and overall transparency, among other factors.
  2. With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.
  3. For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.
  4. When embarking on a new business venture, understanding costs is paramount.
  5. With predictable monthly payments, businesses can plan their budgets accordingly.

The self-funding effort has limits, however, as they don’t want to draw from their retirement accounts. It is important to remember that business finances aren’t just about your earnings; they’re also about how you spend your money and where you get it. When it comes to the latter, you should understand the two main funding categories below.

Once the draw period is over, the borrower enters the repayment period and can no longer access the revolving funds. Rather than pay interest on the entire amount, as with a term loan, a business owner who accesses a line of credit is only charged interest for what they actually use. Unlike a term loan that’s paid out in a lump sum, a business line of credit  is a set amount of money that a business owner can access on a revolving basis. This means the borrower can draw against the line of credit for a set period of time—usually up to five years.

To qualify for a Kiva loan, you also have to agree to use your loan for business purposes only. Once you know why your loan application was rejected, take steps to rectify the underlying issues. For example, you may need to improve your credit score, establish more consistent sales or reassess the amount you need to borrow. You will need to demonstrate how your project or business aligns with the mission of the grant provider and show a solid financial plan for using the funds.

The general ledger notates the account number to which the debit or credit is applied. The best accounting software automates a lot of the process in journal entries for regular debits and credits to help eliminate possible errors in data entry. By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking. It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

Loan limits, repayment terms, interest rates and fees can vary widely depending on the online lender you work with and the loan type. And you can use this type of financing to cover a wide range of expenses, such as working capital, expansion costs, debt consolidation, and purchasing inventory or equipment. Bank business loans typically have low interest rates and competitive terms, but can be hard to qualify for.

For tax advice on your unique business needs, consult a reputable accountant. It deals exclusively in government-backed Small Business Administration loans and delivers your one application to multiple lenders, matching you with your best options. At publishing time, loan amounts, rates, and requirements are current but are subject to change. Leasing equipment instead of buying helps you avoid maintenance costs and can also prevent you from overpaying on equipment only needed for a specific period of time. Also, consider renting your office space to make relocation and expansion easier.