In another articles, we discussed why you should pay attention to your numbers , the 8 important numbers to pay attention to, and how to separate your business finances from your personal finances. Now, let’s talk about simple financial management tips you can adopt for your business.
Every business, no matter how large or small, must have some kind of bookkeeping system in place. Businesses have been known to fall apart because the owner was not aware of how money was being used up, what returns was coming in and what bills had to be paid. Having a simple and effective bookkeeping practice helps you keep your finances under control and make considerable tax savings. It may seem to be a chore but it’s vitally important that you keep track of your revenue and outgoings.
Bookkeeping refers mainly to the record-keeping aspect of accounting. It is essentially the accounting process of recording all the information regarding the transactions and financial activities of a business. Sound bookkeeping is the simplest way to assess and confirm your business’ cash flows, profitability and growth. These 9 simple and effective tips will help you ensure that your financial records remain up-to-date:
It is a good idea to keep all of your business receipts in a single place. It is suggested that you stock up all invoices, receipts, and paperwork for at least five years. Make sure to keep them all collected together in a briefcase or drawer, or scan them and save in soft copies. These are source documents based on which you will record your business transactions.
Keeping records allows a business owner to have a greater understanding of how much progress has been made. You can look back and see patterns and draw comparisons with previous business years. This can provide a greater understanding of the areas within the business which make a profit and where costs might be trimmed. This kind of financial analysis can help you to avoid problems in the future.
The financial statements listed below are useful tools in measuring the financial health of your business:
Understanding how these 3 financial statements work will also help you make sense of other financial documents. With the help of these statements you can make informed decisions about how best to use business credit and how best to commit funds to business operations. We have developed a business resource to help you – Understanding Accounting for Entrepreneurs.
Without exception, your personal and business records should be separately maintained. Ensuring that you keep track of cash flow is critically important for your business and it’s only possible if you have accurate financial records for your business.
Read our article "5 Easy Ways to Separate Your Business Finances From Your Personal Finances" to learn more.
Setting a sensible budget will help you better handle your finances and check your marketing efforts. Many seemingly profitable and growing businesses have failed because they have suddenly been hit by an unexpected cash flow crisis.
Your bank account(s) must be reconciled at least monthly upon receiving your bank statement. Reconciliation involves mathematically comparing your bank balance per your records to your balance per bank statement, and resolving any difference.
A difference in these two balances may result when cheques you have written are yet to be cleared at the bank. In this case the balance per your records will be lower than the balance per the bank statement since the bank is yet to make payments from the cheques. In reconciling therefore, you will need to subtract the outstanding cheques from your bank balance.
We have developed a business resource to help you – Understanding Accounting for Entrepreneurs. Download it here
You should always keep money away for a rainy day. Unforeseen expenses always come with business ownership, and having money when an urgent situation arises will make it less severe.
Taking advantage of simple technology like using online bookkeeping software is one of the best ways to make your bookkeeping easier. It also allows you to simply hand over this task to somebody else so that you can concentrate on other projects such as managing customers, creating latest products or services and looking for new businesses.
It is advisable to know what different accounting software business owners in your industry niche use and how effective each is. Ultimately, whatever you settle on must correspond to the accounting requirements and budget of your business.
“Internal controls” describes the objective required in the handling of funds, where money - be it cash, credit cards, or cheques - is exchanged for goods and services.
The purpose of this objective is to ensure that your business will receive all the income due to it without losing any of it through wastage, carelessness, employees’ dishonesty, fraud, etc.
Every transaction should be recorded. How much is coming in and how much is going out and where is it is all coming from and going to.