Ask any business owner what their least enjoyable task is, and they’ll likely say… “managing business finances”.
And we get it. In fact, for many business owners the task of keeping up to date and on track with finances is a bit of a bore and just means less time creating and doing what you love.
But managing your business finances is an important task, as it helps keep your business running smoothly and saves you money in the long run.
You also need to be across your accounts if you want to apply for any COVID financial relief packages, as you will need to show your income (and many COVID relief packages require you to be GST registered).
But don’t worry if you find yourself with unorganised accounts or messy cashflow, because we have a few simple tips to help make it easier.
Managing business finances
Most business owners are managing several departments: you’re often overseeing marketing, sales, legal, HR, and customers service – it’s no wonder that the financial side of running a business can often be left a little lacking.
Throw in other factors such as you might have multiple income streams and it can be even harder to keep on top of where the dollars are going and coming from.
Whether your side hustle has grown suddenly, or your established business has never had good record keeping, it’s never too late to start to get financially organised - and I promise, as experienced bookkeepers, we don’t judge!
6 easy bookkeeping tips for entrepreneurs and small business owners
If the words ‘Budget’ and ‘Cash forecast’ make you shudder, that’s okay. You are good at what you do whether it’s running a hair salon, making jewellery, creating art or music, running a legal firm, or producing a line of handbags. You are not expected to also be a whizz at spreadsheets!
That’s where our team at Counting Clouds can help as we are experienced in helping small business owners run and grow their businesses and make sense of their business finances.
Whatever your business type, these 6 tips will help your business to thrive.
1. Ensure you have separate bank accounts
One of the simplest ways to get financially organised is to ensure your business has a separate bank account to your own personal accounts. Whether your business is currently a side hustle, or it’s a fully-fledged business turning over 6-figures, you need to ensure you 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 incoming and outgoing, plus you will be able to see how much money you actually have in your business.
2. Gather and file receipts
If your receipt keeping looks more 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, you can also manage your cash flow and meet your tax obligations.
By law you must:
- explain all transactions
- keep records writing (electronic or paper)
- keep records in English or in a form that can be easily converted
- keep records for five years (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 technology for submission of source documentation. Our preferred app is called DEXT, which when installed on your phone can take photos of your receipts and then talks to your Xero, 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. Always know how much income is due
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.
And remember, that late payments can affect your cash flow. So, it’s worth having a good accounting system so that you can encourage early payments or chase up unpaid accounts.
4. Understand your expenses
A good way to start is to list all your outgoings and liabilities such as loans, rent, IT management, payroll, marketing, investments, and tax bills.
If you have a good system for income and expenses, you’ll always be able to see how much money is in your business, and you won’t have any nasty, shock bills that you can’t pay.
5. Get a good payroll system
If you have staff, failing to implement a proper payroll system will 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.
Since 2019 the ATO have added another layer of compliance for employers with the introduction of 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. Seek expert financial advice
If you’d rather get some help to ensure your accounts are in good shape, then it’s a good idea to find a local bookkeeper or accountant. Bookkeepers and accountants are trained and knowledgeable in all accounting processes, and they can save you valuable time and money in the long run.
Otherwise, be prepared to set aside time regularly to do your books yourself, and don’t let yourself 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 to USE it. It’s always best to start right, get someone to help you set it up, have your bookkeeper or accountant review the system regularly.
Benefits of a good accounting system
The benefits of having a good accounting system extend further than just less stress for you.
There are tangible business benefits too:
- You can see your predicted profits
- You can avoid a surprise tax bill
- You can save money on accountant fees
- You can always know where your cash flow is at, so you can be ready for any growth
- You can apply for COVID business support grants and other packages (most of the state COVID packages need you to be GST registered)
Call to Action Ready to set yourself up for bookkeeping? Talk to the team at Counting Clouds and find out how we can help you.