You work hard in making your business because it's something you're passionate about. However it's not because you enjoy balancing books. Nevertheless, accounting is essential when running a successful business.
The following are three tips to successfully manage your finances, at whatever point you're at in your business journey:
1. Understand your financial story
Looking at your financial statement, you should have an understanding as to what's behind each figure. You don't need to be a skilled accountant but it's useful to have a basic understanding of standard accounting knowledge, including that of the following statement:
- The Income Statement - illustrates your businesses progress during a set time period
- The Balance Sheet - provides a snapshot of your finances on a particular day
- The Cashflow Statement - shows how Balance Sheet and income changes affect cash
Business accounts don't need to take hours of your time. Using the right tools, it can be fast and easy, allowing you time to focus on your businesses journey.
2. Keep up-to-date records
Keeping up-to-date accounting records allows for far better and more educated decisions, based on current facts. Therefore, it is essential you take time each week to update your books.
Using the right tool, you shouldn't need to spend more than several minutes a day, but your business will be reaping the rewards very soon. Up-to-date records helps to provide a reliable idea of your progress, making it easy to ensure you can pay yourself and your employees each month. You should keep a record of business costs, allowable expenses and business revenue. Doing this a few minutes each day can save you hours come end of year.
3. Create and maintain a budget
Attempt to estimate and plot your expected expenses and income so you can foresee future cash flow. A monthly budget can help with this. Create one until the end of the current financial year, then track and update your estimated figures with the real once as they come in. You can monitor progress against your initial plan and adjust it to improve future performance.
Don't forget to create your budget for the full financial period (typically spanning a year) so non-regular expenses - such as insurance, taxation and periodic expenses - can be factored in.