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.
Choosing an accountant is one of the most important business decisions you’ll make. Finding a good accountant – or a trusted advisor – that really understands your business will be invaluable to its growth. While choosing the wrong accountant could end up costing you time and money.
Here are five important things to consider when choosing an accountant:
1. Get references and check accreditation
It’s wise to do a background and accreditation check, which you can usually do online. Ask the prospective accountant to provide client references. It’s also useful to get a recommendation from someone in your industry to be sure the accountant has a real understanding of your business’s needs.
2. Create a shortlist of candidates
Have an introductory chat with a few accountants, get quotes and make a shortlist. Establish how they prefer to communicate with their clients and if this suits your business.
Traditionally, many accountants only met with clients once a year. Today, younger and more forward-thinking accountants are embracing the online world and using platforms like Skype and FaceTime to keep clients updated on a more regular basis.
3. Check accountant fees
Often companies are charged by their turnover level, but you should really only pay for completed hours. Check how the accountant works out their fees, as this can potentially save you thousands. Always ask for a quote based on workload rather than what your business is making.
4. Stay in contact with your accountant
Ensure your accountant will have the time to stay in regular contact. If not, they won’t be able to provide you with the best advice. Companies often go into liquidation simply because they haven’t kept their accountant in the loop.
5. Could you be getting added value?
Pick an accountant that understands customer loyalty and retention. Many go above and beyond for their clients. Some are happy to recommend accounts software based on your business needs. Others like to hold regular networking events and business workshops. Some will even give you regular reviews of your finances free of charge, and make recommendations to help you boost profitability.
It can be easy to forget how important accounting is to your business. Your accounts tell you the real story of your business and are essential for helping you predict and shape your future success.
So while it might all seem a bit daunting, or something you can put off until the tax man comes knocking, it’s important that you take action today.
Here is your eight-point survival guide to help you conquer the financial side of your business.
1. Know your numbers
You’ve probably written a business plan, highlighting your vision and intentions, but does it include budgetary milestones? Setting financial targets, for example, achieving 5% year-on-year growth, is essential to help you stay focused and give you something to measure success against.
2. Keep up-to-date records
Spend time every week, or even daily, updating your accounts. Keep track of revenues, business costs and expenses as they happen. If you know where you are financially, you can make better decisions based on real, current facts.
3. Budget forwards
You should plot your projected income and expenses up to the end of the current financial year so you can anticipate future cash flows. This gives you a tool to measure what actually happens against your plan, enabling you to adjust your operations to improve future performance.
4. Manage your time effectively
Time is money, and effective time management is a key skill you must have at your disposal. You’ll have to learn how to prioritise tasks so you always keep your key customers and vendors happy, and take care of the most urgent jobs as soon as possible. Managing your time will also ensure the financial side of your business is well intact, meaning you and your accountant are always on the same page and communicating effectively.
5. Scrutinise your costs
Whether it’s unbillable, sunk cost activities that are essential to your business, or any of your other general business expenses—utilities, printing, stationery etc.—you should keep a close eye on your costs, and employ effective internal purchasing approval processes.
6. Secure your revenue
Here are two easy, sensible steps you can take to minimise the risks of not getting paid, or being paid late. Firstly, agree with your client when you will invoice them, stick to that, and clearly state your payment terms on your invoices. Secondly, be prepared to compromise if a client is struggling to pay—it’s usually better to wait a couple of months than take legal action.
7. Plan carefully for the year-end
Going through all your financial documents at the end of the year can be a daunting task for even the most experienced business owner. To make the task easier on yourself, perform a month-end, where you file away all invoices, receipts, remittances and any other accounting paperwork in chronological order. That way it will be ready for easy retrieval, and the onerous demands of your year-end accounts won’t bring your business to a standstill.
8. Turn to technology
Use all the innovative accounting technology you can to help keep track of your income and expenses more easily, set alerts and reminders, manage workflow, and stay up to date with all your day-to-day business efforts.