Every small business needs sound financial management to ensure that resources are used effectively, cash flows are managed and anticipated growth can be adequately planned for. While some owners, particularly of cash-strapped start-ups, may find allocating time to financial management difficult, it is essential to get on top of your finances.
Just the act of organising finances can be intimidating for some, but with some forward planning and organisational skills, small business owners can easily get to grips with the task.
Here are some tips for getting started with small business financial management:
1. RECORD EVERY EXPENSE
Keeping track of all your business expenses will save you from having to sort through receipts at the end of the year. Be sure to include car expenses, petrol, travel, meals and entertainment. If you subscribe to any business magazines, you can log these expenses in the same spreadsheet, or create a new one for your business.
2. KEEP YOUR RECEIPTS
Keep your receipts in a folder or box. You should be able to get to it easily if you need to get to it. If you get cashback from purchases, you may want to consider using the cash method of accounting, which allows you to deduct those expenses from your income. You can then keep track of those expenses by logging the cash purchase.
3. BOOK-KEEP ON A REGULAR BASIS
Budgeting and bookkeeping are two separate processes. Budgeting looks at the bigger picture of the business, but book-keeping is a record of your daily transactions. It’s a good idea to book-keep on a regular basis to ensure that you’re continually on top of your finances and don’t have unpleasant surprises lurking.
4. KEEP A CASH REGISTER
When you’re collecting and spending cash it can be hard to keep track of what you have taken in and what you’ve spent, even if this is just petty cash. In most cases, you can keep a cash register that will record every cent received and is spent. If you’re running a home or family business this also helps ensure you’re keeping business and personal finances separate. You can then use this register to help create a profit and loss statement.
5. CREATE A PROFIT AND LOSS STATEMENT
A profit and loss statement is a snapshot of your financial health at a specific time. It shows you how much money you have made and lost during a specific period of time. They are useful for understanding how your business is tracking and help you focus on any areas that need attention.
6. CREATE A BUDGET
A budget is a financial plan. It shows you how much money you expect to make and spend on an ongoing basis. You can use it to manage your income and expenses. While this is standard advice, many small businesses struggle to find the time to create and maintain a budget, but this can lead to problems for your business when you’re trying to plan activities months in advance.
7. SET YOUR ACCURACY STANDARDS
The first step to budgeting and book-keeping is to set your accuracy standards. What is the minimum amount of information you require at the end of a financial period to meet your legal obligations (such as GST and Tax), to report to any investors or banks or to other owners? This is also useful for making business decisions on when and where to invest, so you have the information required to make these decisions at your fingertips. Once you have defined your accuracy standards, you can then create a budget and book-keeping plan that will enable you to reach those standards.
8. CREATE A BUDGET AND BOOK-KEEPING PLAN
The second step is to create a budget and book-keeping plan. This plan will include how to reach your accuracy standards and manage your income and expenses over time and makes it far easier to hand over some or all of your accounts to someone else when you’re on holiday or when you need professional help.
9. HIRE A BOOKKEEPER
Book-keeping is a time-consuming process. If you don’t have the time to do it on your own, you can hire a bookkeeper to do it for you. This can be a good option for small business owners that want to focus on the core aspects of their business. There are options to contract a part-time independent bookkeeper who can manage your books on your behalf, or if your business is large enough you could bring them in-house. Either way, a bookkeeper can help reduce your accounting costs and help you monitor your business more closely to ensure you’re achieving budgets and have the right financial information to hand to make important decisions quickly.
10. TAKE ADVANTAGE OF ACCESS TO INFORMATION
You can use the internet to find out what competitors are charging for similar products or services. You may also find out whether they are claiming any special tax breaks or any programs that you can also take advantage of. You can also use the internet to discover grants from all levels of government and business opportunities that you might be eligible for that can help your business continue to financially succeed.