How to keep better track of your business finances

Keeping careful track of your business’s finances is one of those must-do tasks to keep your business healthy. Nevertheless, it’s not an appealing task for many business owners and one that you might be tempted to neglect their numbers. 

I tend to see two main types of business owner. 

Firstly, there is the ostrich who avoids those unpleasant tasks, neglecting to track income and expenses by letting receipts pile up (or get lost) and failing to enter data into a book-keeping system.

Secondly, the more conscientious business owner who is doing a decent job of keeping income and expense records up to date, but who fails to use the numbers to understand the business\’s financial situation. Over and over I hear owners admit, sheepishly, “I don’t do enough with the numbers.”   

If you merely keep up with the basics, you might avoid an out-and-out disaster. But you will definitely miss opportunities to thrive if you don’t use your data to make strategic decisions. Here’s my three-point plan for making the most of the financial information you should already have at your fingertips.

1. Get Over the Hump

If you\’ve had your head in the sand about your business\’s finances, take heart: you are not alone by a long shot. Most successful business owners loathe dealing with numbers and regard financial management with a combination of anxiety and insecurity. Typically, they say they are simply too busy running the business to deal with tracking income and expenses or analysing the numbers.

The good news is that affordable book-keeping software automates most of the work, from tracking account balances to generating sophisticated financial reports, putting essential financial information at your fingertips. Newcomer to the market, Xero, even allows you to automatically import your bank statements for easy reconciliation. 

If you really hate working with numbers or truly don\’t have the time to do so, have a competent employee or outside book-keeper do the task. However, as the owner of the business and the person responsible for guiding it, you do need to be in control of your business’s finances. So if you use someone to do most of the financial management tasks, make sure you’re in the loop and that you understand what the numbers mean. Don’t be shy about asking for guidance or mentoring from an accountant or book-keeper. If you feel insecure about your level of financial knowledge, you’re in good company. Just make a sustained effort to learn as you go. 

2. Get your Financial Management Organised 

The trick with book-keeping is to establish a system early to help you stay organised. It doesn’t have to be complicated. You just need a simple process for organising your receipts and files, as well as having book-keeping software set up and configured, handle most or all of your book-keeping tasks. I typically break financial management down into three broad steps. 

Step 1 – Keeping and organising records of expenses and income

Financial management starts with keeping records of all the money the business spends (expenses) and all the money it earns (income). This means carefully keeping and organising expense records such as receipts from the stationery shop, invoices from your web-hosting company, and receipts of payments to your freelancers and your income receipts such as your invoices to clients marked “Paid”.

Step 2 – Entering this information into bookkeeping software

On a periodic basis – maybe monthly for a small consulting business and daily for a busy café – enter the information from your income and expense receipts into a book-keeping system. More often than not, this will be some sort of financial management software such as Xero, Sage or QuickBooks but you can use Microsoft Excel or even a manual cash book. 

Step 3 – Generating financial reports

Finally, with up-to-date information entered into your bookkeeping system, you\’ll be able to generate reports such as a profit/loss report or cash-flow projection to reveal how your business is doing. 

Financial reports summarise the data in your book-keeping system to show you different aspects of your business’s financial situation. For example, a profit and loss report compares monthly income to monthly expenses to show whether your business is selling enough products or services to cover costs each month. A cash-flow projection shows similar information, but includes other sources of income such as capital contributions from owners or loans (that is, not just revenue from sales). It also organises the information slightly differently to show you whether the timing of your income is adequate to pay your bills on time. 

3. Enjoy The Payoff

By generating these reports, you\’ll be able to see trends and patterns in your business\’s finances and identify profitable opportunities to pursue. You\’ll also avoid letting your business simply drift along or, worse, running it into the ground. Here are a just few ways that analysing your financial reports will help your business:       

You’ll be able to price goods and services more competitively, pace growth more effectively and trim costs strategically. For example, you might cut back on travel expenses or outsourced services that aren’t helping to generate sufficient income.      

You may be able to reduce taxes by timing your purchases strategically and claiming all your deductible expense – opportunities that often escape businesses with disorganised records.     

You’ll be able to manage your cashflow, ensuring you can pay important bills on time. Cashflow management is a critical element to avoid finding yourself short of cash when it’s time to pay taxes, payroll or meet other crucial expenses.          

You don’t need to turn into a financial whizz overnight. In practice, I advise every small business owner, during their start-up days, to consult at least once or twice with an experienced book-keeper or accountant (or both) to help get off on the right foot. If you feel like a novice when it comes to the money stuff, the right advice will help you get over the hump of your financial learning curve and you’ll soon be on your way to a more profitable business.

For more advice and accounting updates, visit the Coalesco blog.

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