Six Tips for Business Finances
Simple Ways To Keep On Track
Ask any business owner to name their least enjoyable task and they’ll likely say that it's managing business finances. We get it: Unless you're a bookkeeper, it's not what you went into business to do!
Keeping on top of it IS important though. It keeps your business running smoothly and saves you money in the long run.
Most business owners are managing several departments: Marketing, sales, legal, HR, customer service, etc. It’s no wonder that the financial side can often be neglected.
Throw in other factors like multiple income streams and it can be even harder to keep track of the dollars in and out.
Whether your side hustle has grown suddenly or your established business has never had good record keeping, it’s never too late to get financially organised. We promise: As experienced bookkeepers, we don’t judge!
So don’t worry if your accounts are in disarray, because these 6 simple tips will get you on track!
1. Separate bank accounts
One of the simplest ways to get financially organised is to set up a separate bank account to your own personal accounts. Whether your business is currently a side hustle or a fully-fledged business turning over six figures, you need to set up a separate account. This can be with the same bank or a different bank - It’s up to you.
Having a separate account will make it so much easier to reconcile incomings and outgoings, and you will be able to see clearly how much money you actually have in your business.
If your receipt keeping looks like the pile of paper on the living room floor on Christmas day, then it’s time to find a better system!
Why is it so important to keep receipts? As well as making your life easier, it helps you to manage your cash flow and meet your tax obligations.
By law you must:
- Explain all transactions
- Keep records in writing (electronic or paper)
- Keep records in English or in a form that can be easily converted
- Keep records for five years (and some records may need to be kept longer)
You can keep many business transactions in electronic form, but paper records are better than nothing.
We use an app called DEXT, which when installed on your phone can take photos of your receipts and then talk to your Xero software, keeping everything seamless and paperless. You also have the option of emailing bills and invoices to the software, meaning there is no need to keep your filing anywhere else!
3. Incoming payments
A basic principle of bookkeeping is that you should always know how much is coming IN to your business. How much are you billing? How much cash is coming in from customers or clients who are buying your products or services? If customers don't pay at the time of purchase, some of your cash flow is coming from collections of accounts receivable.
On that note: Late payments can affect your cash flow, so it’s worth having a time-efficient plan for chasing up unpaid accounts. Invoices can be set up with automatic reminder emails, and statements can be sent for overdue accounts. User-friendly electronic payment gateways have been shown to result in more on-time payments as well!
A good way to get a grasp of your expenses is to list all your outgoings and liabilities, such as loans, rent, IT management, payroll, marketing, investments and tax bills.
The more thoroughly you do this, the less likelihood there'll be of having nasty, shock bills to pay.
If you have staff, failing to implement a proper payroll system can spell disaster. A good payroll system will allow you to easily keep track of hours worked, employee details, tax and super obligations, plus annual or sick leave costs.
In 2019, the ATO introduced Single Touch Payroll. This means that if you have staff, you must have an electronic payroll system that is STP compliant and has the capacity to transfer payroll data at each payroll event. All of Xero’s payroll subscription levels have this capacity.
6. Expert advice
If you're doing your books yourself, be prepared to set aside time regularly to do them, and don’t put the task off. It’s too important to the future of your business.
Setting up a Xero file is only one step in the process. Xero is the tool - You also need someone capable of USING it. It’s always best to start right, get someone to help you set it up, and have someone review the system regularly.
If you’d rather get some help to keep your books in good shape, it’s a good idea to use a bookkeeper or accountant. It’s worthwhile differentiating here between the two:
Accountants usually charge a much higher rate than bookkeepers, so there’s money to be saved in using a bookkeeper rather than an accountant for the following:
- Paying bills and keeping track of them
- Payroll technicalities and processing
- Preparing financial statements
- BAS, IAS, PAYG, and Annual GST lodgements (if they're a registered BAS agent)
With your books in a good state, you can then hand them over to your accountant at tax time. They can use their eagle eye to discover deductions you might not have known were available.
The benefits of these foundations
The above foundations alleviate stress and overwhelm, but they have practical business benefits too:
- You can see your predicted profits
- You can be ready for upcoming bills
- You can minimise accountancy fees
- You can monitor your cash flow and navigate your business accordingly
Would you like a hand setting up your business finances? Talk to the team at Counting Clouds and find out what we can do for you. We'd love to help, so please email us on [email protected]