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.
As a small business owner, you know that time is your most valuable and scarce asset. If you spend it the wrong way, you can never get it back.
A report from McKinsey surveyed 1,500 executives across the world about how they spend their time at work. The findings reveal only 9% of respondents were ‘very satisfied’ with their time allocation.
So how can you improve your time management?
1. Understand the monetary value of each working hour
If you know how much revenue each activity generates for your business, you’ll be less likely to spend your company’s money and resources on the wrong things.
If you’re struggling, keep a log in a spreadsheet of what you and your team do each day, how long tasks take and if they generate revenue (directly or indirectly).
This quantification will help you manage your time and your company’s resources more efficiently.
2. Create to-do lists
Many small business owners try to remember granular details about each project, leading to information overload. Instead, use a to-do list to get actions out of your head and take charge of your projects.
Sir Richard Branson is just one of many business people who credits his success to to-do lists. On the Virgin blog, he writes:
“I do indeed write to-do lists and prioritise items. I live my life by writing lists – there is one next to me right now. Without to-do lists, I would use my time far less effectively, and have a lot less fun.”
Besides pen and paper, here are five great (and affordable) resources for creating your to-do list:
• Wunderlist: an affordable, cloud-based to-do list app that’s great for sole traders and small teams
• Trello: a powerful productivity tool geared towards collaboration
• Outlook’s to-do list: links directly to your email
• Any.do: another powerful productivity tool geared towards collaboration
3. Focus on what’s important
Productive small business owners know their time is best spent working on important and or urgent tasks rather than those that add little business value. When reviewing your to-do lists, be ruthless and efficient about what gets your attention first.
You’ll accomplish more if you focus on one task from your list at a time. Of course, sometimes unforeseen events take priority, but your goal is to work through your to-do list methodically when possible.
4. Do it, delegate it, defer it
In his best-selling book Getting Things Done, business productivity author David Allen highlights the value of rapidly doing, delegating or deferring key tasks as appropriate.
By doing, you use your cognitive skills in a sensible way that delivers a return to your business. By delegating a task that’s inappropriate for you, you use your time and your team’s resources and skills more efficiently. By deferring, you put off what’s unimportant until a future date when you have the required time, energy and resources.
This simple three-step workflow will help you work on high-priority tasks more frequently and grow your business.
5. Take regular breaks
Overworking is as damaging to your health and business as not doing enough. Ensure you take proper breaks and get away from the office. Otherwise, you’ll feel stressed about working extra hours and likely become unproductive and frustrated about your progress.
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.