Keeping track of your business finance is critical, regardless of whether you run a small business or a large enterprise. Tracking financial metrics may be boring or tedious for some people, but it’s absolutely essential.
Why? Because it enables you to know exactly what’s going on with your sales and expenses, and therefore make smarter business decisions. Staying on top of your finances makes tax reporting easy, it could help you avoid disaster, and it will make your business more profitable.
1. Separate the personal from the business
Mixing personal with business finances is an easy trap many small business owners fall into. The main reason why it should be avoided is it can lead to confusion and errors that are time consuming to rectify. It’s incredibly important you always keep accounts separate, and use separate debit and credit cards for your personal and business spending.
Keeping the personal and the professional separate makes it easier to track, measure, and report your business activities. You’ll find it easier to work out applicable tax deductions and monitor expenses. It will make using automatic reporting tools, such as those linked to your bank accounts, much more straightforward.
2. Automate record keeping
Automate your record keeping wherever possible. Popular and well-regarded accounting software programs typically come with unique features and options, so check out the features offered by each product, measure them against your business’s requirements, and choose the best one accordingly.
Often these products will seamlessly integrate with the cloud so you can track your finances in real time, regardless of your location. This gives you considerable flexibility and can save you a lot of time. For example, many of these systems can automatically sync with your business accounts or export your transactions, meaning you no longer have to manually enter data or generate reports.
Some banks offer detailed expense reporting tools that allow you to categorise and pinpoint specific ingoing and outgoing expense. Explore the different options that are out there, and take advantage of a more efficient and accurate finance reporting system.
3. Record key processes
Identify key processes in your operations and find ways to incorporate simple steps that will reduce record-keeping labour and time. For example, if you have staff members that frequently use their phone, get them to log their expenses using a mobile app that’s directly linked to your cloud-based software program. This extra step might add a few minutes to your team’s daily routine, but overall it could result in more accurate tracking of your business’ expenses.
Obviously, if you can automate these processes (for example, syncing staff credit card accounts) you should do so. But if this isn’t an option, research and implement manual processes and establish guidelines for logging data.
4. Create a business budget
A budget helps your business the same way it would your personal finances. Commit to implementing a business budget (which can incorporate all of yourkey reports, such as your profit and loss, aged debtors reports, cash flow statement and balance sheet) to help you make good decisions for your business’s future. Your budget should be designed based on your report findings, from which you should be able to identify where you can save more, generate more income, meet your obligations, as well as find growth opportunities.
5. Manage cash flow and customer payments
Actively manage your cash flow and your customer payments with standardized processes for escalating unpaid invoices and tracking cash flow. Automate the tracking and recording of these where possible, and use software tools that alert you when outstanding payments are left unpaid beyond a certain period of time.
Unpaid accounts can drain your business’s cash flow and constrain your daily operations and growth. While automatic tools can help save time, working with a bookkeeper is still the best way to save time on invoicing and ensuring your invoices are accurate.
Set out standardized procedures for escalating outstanding invoices so that staff can contact customers to follow up in a timely manner. Specific types of reports,such as aged debtors reports, allow you to track unpaid invoices easily. You should also work out a pathway for further escalation if invoices disputes do happen to arise.
Tracking expenses, finding cheaper suppliers, consolidating debt, and negotiating more favourable prices and payment termsare other ways to keep your cash flow situation healthy.
6. Review and adjust your strategy
There’s no point having many financial reports at your disposal if you don’t make use of them. As a business owner, take time out to review your reports so you know exactly what’s going on. Whether it’s weekly, fortnightly, or monthly, do it on a regular basis. As you become better informed, you can make smart business decisions at a strategy level, which helps with the decisions you make on a daily operational level.
This strategic understanding of your business helps you project future revenue and expenses and plan for any contingencies. This risk management aspect of monitoring your finances is another important element of why it’s vital to stay on top of your finances.
7. Work with advisors
Many business owners aren’t numbers people though they rely on numbers to track their business operations. Working with a trusted bookkeeper is advisable, and it will save you many hours of stress and help you avoid costly errors – which leaves you with more time to focus on your core business activities.
Along with using a professional bookkeeping service, it could also help on a strategic level to work with financial advisors, tax accountants, and other professionals who can show you how to take full advantage of available tax breaks and manage your financial strategy. These financial advisors could help you accurately understand your business to identify opportunities for revenue and even restructuring options that support better compliance and tax outcomes.
8. Setting the foundation for success
As you can see, tracking your business finances doesn’t have to be complex or time consuming. If you automate what you can, review regularly, and seek expert advice, you can turn your business around, avoid cash flow issues, and set a firm foundation for growth and profit.