You work hard at making your business a success because you love what you do—not because you love balancing the books. But accounting is a business essential that’s crucially important to your success as a startup.
Here are our top three tips for successfully managing your finances, wherever you are on your business journey:
1. Understand your financial story
When you look at your financial statements, you should know what’s behind every figure. While you don’t need to take a course in advanced accounting, it’s useful to understand basic accounting practices and terminology, including the following three kinds of statements:
- The Balance Sheet is a snapshot of your finances on a given day
- Income Statements show a business’s progress over a set period of time
- A Cash Flow Statement shows how changes in the Balance Sheet and income affect cash
Your business accounts don’t have to take hours of your time. With the right tools, accounting can be quick and simple—so that you can focus on your business journey.
2. Keep up-to-date records
Businesses with up-to-date accounting records are far better at making informed, educated decisions based on real, current facts. It’s therefore essential that you allocate some time every week to updating your books.
With the right tools, you don’t need to spend more than a few minutes a day, but it won’t be long before your business starts reaping the rewards. Keeping your records up to date helps you create and maintain a solid and reliable idea of progress—making it easier to see if you can pay yourself and your employees this month. You need to record revenues, business costs and allowable expenses as they happen. A few minutes a day can save you hours over the course of a year.
3. Create and maintain a budget
Try plotting your future expected income and expenses so that you can foresee cash flow. Creating a monthly budget until the end of the current financial year—and then tracking and updating your provisional figures with the real ones as they come in—helps you monitor progress against your plan, and adjust your plan to improve future performance.
And don’t forget to run your overall budget for the full current financial period (usually a year) so that non-regular expenses—such as annual insurance premiums, taxation or periodic services expenses—are also factored in.