Failure to organise your business finances can have a serious negative impact on your business – even to the point of endangering its survival. Here are five easy steps that any business can take to ensure that their finances are kept in order:
- Keep records: when your BAS statement or annual tax return is due, things are considerably easier (not to mention quicker) if you have keep accurate records. This is particularly important for any business expenses you are looking to claim. As well as keeping accurate records, you should also have your records organised, with paper documents filed in an easy-to-understand system that is also explained in an easy-to-find manual in case the regular record-keeper is away or leaves unexpectedly – a system that is obvious to one person can leave another scratching their heads.
- Computerise your records: following on from point one, using (the right) business software can make recording transactions so much more efficient. I have a personal preference for Xero, which allows you to review real-time reports on financial transactions, but there are a number of software options to choose from. Take the time to consider your options particularly to see if there is software specific to your industry (just make sure it is compatible with the main accounting software systems for when you are handing over files to your accountant!)
- Pay on time: which means pay neither early nor late. By paying early, you are denying your business the interest you would earn from having the money in your account. In many cases this interest will be negligible, but if you are making large, frequent payments well in advance of their due date, you could be costing your business a surprising amount in the long term. At the other end of the spectrum, paying too late could result in overdue fees, or at the very least the goodwill of suppliers who will soon tire of chasing you for every invoice.
- Collect on time: In this case, if you can get the money early, fantastic! Small business owners who don’t enjoy administration can often neglect the invoicing and collection aspects of the business – to their detriment. The longer a bill is unpaid, the greater the likelihood it will result in a bad debt. Also, if your customers know you won’t chase them for overdue amounts, they have no incentive to pay you at all – and you will end up constantly battling to get each payment. Make sure payment terms are clearly stated on your invoices, and follow up as soon as a payment is due.
- Review your statements: bank and credit card statements should be carefully reconciled each month to ensure that all transactions recorded actually took place. Having a great reporting process in place isn’t effective if it’s not reflected by reality!
By Jennifer Lowe