Business is a numbers game, and you can’t be expected to run your own company if you don’t know how to make a profit. However, running a small business can be challenging, even for veteran entrepreneurs. You’re juggling different tasks simultaneously, and it often seems like you’re putting out fires left and right. It’s easy to neglect your books if you spend most of your time dealing with more immediate concerns.
But your business will never grow if you don’t focus on the numbers. Without financial figures, you have no way of knowing whether your business is earning a profit. You can’t create sales forecasts or prepare for downturns. Data is everything today, and the right figures can help you make better, more informed decisions. For instance, an office capital allowance assessment can minimize your tax burden.
There’s a reason why many businesses fail. Without effective financial management, your company is destined to go under. But many small business owners still fail to practice basic accounting concepts. You don’t need a degree in finance to keep your business out of the red. With a bit of hard work and some common sense, you can get your company back on track. Here are a few tips to get you started.
1. Keep and organize paperwork
You need to save and file every piece of paper, including receipts, that come your way. Without a paper trail, you have no way of reconciling erroneous reports or keeping track of your financial movement. Missing reports can also get you in legal trouble if you’re not careful.
If you don’t know where your money goes, then it’s a tell-tale sign of financial mismanagement. Every dollar that comes in and out of your business needs to be recorded. Cash can be difficult to track, so consider using a credit card to pay for business expenses. That way, you can check the monthly statement. It also helps to take photos of receipts as a digital backup if you lose the paper copy.
2. Update your records daily
We go out of our way to accept payment from a customer, but we aren’t usually as enthusiastic about updating the record of receivables. A bill includes all the information we need to track a customer, including the goods they’ve received and the total amount owed. If our records are regularly updated, we can easily check which customers have paid their balance. Otherwise, nothing can stop them from not paying at all.
One of the reasons we put off updating our records is the lack of training in accounting basics. We let the receipts stack up until we’ve lost track of our receivables and nothing makes sense. It helps to read up on the basics or to enroll in a business accounting course. A few hours of studying a week can save you from financial trouble down the line.
Once you know your receivables from your payables, make sure to record the transactions within one business day. Most business owners update their books after the close of business, so you might want to do the same.
3. Work with professionals
Finance can be a difficult subject to master, so it helps to work with a financial consultant to straighten any kinks regarding your business. You also need to hire an accountant to look after your figures. Some people do their own books and taxes to save money. But if you don’t know what you’re doing, you could make a costly mistake.
The bottom line
Every small-business owner needs to learn how to manage their finances. These three tips will help you balance your books and get your figures right. Once you’ve learned the basics, make sure to update your books every day. Don’t be afraid to ask your accountant to clarify some concepts.