Understand finances- taking control of your business
If you are like me the financial aspect of running the business is a chore. It is much more interesting and enjoyable to be at the business end – doing what you do. I would much rather be developing a new marketing campaign or discussing future plans with a client than talking margins and profit and loss or cash flow with my accountant. But this can be a little dangerous. If you don’t pay enough attention to your business’ finances it is very easy to get into a lot of trouble, often before you even realise you are in trouble.
As a business owner and as an entrepreneur the buck stops with you. Not knowing or not understanding your financial position is not a good argument during a tax audit (and if you haven’t experienced one of them, boy…are you in for a treat).
I strongly recommend two things. Firstly, from now on question your accountant or book-keeper about what everything in your business’ financial means and what it’s for. Secondly, know your numbers when it comes to trying to achieve. If you’re setting yourself financial targets whether its sales or costs, you need to know how close, or how far away you are from it.
Keeping good records always pays off in the long run
I remember my first visit to an accountant. I had three years’ worth of business records crammed into three shoe boxes. My poor accountant. Her face was a picture. Her language not so pretty…
Since then I have well and truly learned the lesson of keeping good records.
Quite simply not keeping good records will cost you money, often a lot of money. Basically, there are two lots of records that need to be kept in business-money in and money out.
Poor records regarding money coming into the business tend to border on tax evasion or at least avoidance, and taxation departments in all countries tend to be rather down on this subject. (More so small businesses, but that’s my own opinion of course.)
Poor record keeping of money going out of the business often means you can’t claim justified expenses because you don’t have the appropriate receipts or records. So not only do you not get the deduction, the expense is classed as a personal expense and you have to pay tax on it. Whichever way you look at it, poor record keeping does not do a lot towards building a successful business.
What can you do today?
If you don’t understand what your business’ financial statements actually mean, make an appointment to get your accountant to explain them to you – it is well worth the expense. Then book yourself in to do a basic bookkeeping course.
Often records can be in such a mess it is hard to know where to start and that very problem prevents the entrepreneur from getting their act together. The best thing to do is to bite the bullet and get someone in to help you. Get a professional; odds on they have been through this situation before (and you should check to make sure they have). Generally, you will find they can rattle off half a dozen stories of businesses that have been in far worse condition than yours, which really does make you feel a lot better.
Even if you think your records are pretty good, maybe today is a good day to review your systems and record keeping looking for ways to make it even better.
Look at bank statements no matter how silly you may feel. Get to know the terminology and decide whether you agree your books accurately reflect your business. It really isn’t that complicated.
From my experience, many accountants aren’t that good at communicating so they don’t tend to give you good descriptions. In all fairness, they deal with the terms day in day out, so most are second nature to them and perhaps they forget they aren’t second nature to us.
Make it your business to understand your accounts.
The second recommendation I would make is to enrol in a simple business bookkeeping course, online preferably, so you get to know more about the processes being used in your own business. I am not saying you should do your own bookwork if you don’t want to, but at least understand it better. It is very liberating to be able to look at a profit and loss statement and understand what it means. Most people have no idea.If you think it is time to dig out the shoe boxes and call an accountant, do it.
Get the phone book out, search engine search it or ask your business associates and mentors for a recommendation.
Take control of your record keeping today. If you think your records are pretty smart, try to find at least one thing you could be doing to improve it.