Financial literacy – the knowledge and skills needed to manage your financial affairs – is not just important in business; it’s imperative. Entrepreneurs flourish and flounder as a result of their ability – or lack of – to juggle the complexities of business finance. Financial literacy is not usually why people decide to start a business but as soon as the expenses begin to flow, it’s a skill that keeps the doors open.
The obvious benefit of mastering your finances is balancing the books and keeping cash flow steady – not only does this help manage the growth of your business but it can also be a deciding factor when it comes to securing business loans from lenders.
Financial competence also reduces the likelihood that you’ll overlook essential business liabilities like tax payments, GST and superannuation.
Concerned your financial skills are below par? Here are six steps you can take to improve them and get on top of your affairs.
1. Do the books – and do them often
The key to managing finances – however you choose to do it – is to do it often and create processes. If you’re prone to stuffing bank statements and bills in a drawer or letting the receipts pile up until tax time looms then at the very least create a system to manage this habit. Put bills in one box, entertainment expenses in another and so on and so forth.
Review your expenses once a month and input the numbers into a document that shows your progress. Ultimately the key here is consistency as this ensures incorrect billings can be rectified straightway and you can see how your business is tracking.
2. Use up-to-the-minute accounting software
With this said, if you are still using the ‘drawer method’, consider updating to a cloud-based accounting service that allows you to manage your money easily and immediately, even on the move.
While it may take some time initially to learn how to use new software, companies like Xero aim to put the skills of an accountant into the most novice hands. Systems like this give you the ability to create feeds that are directly linked to your business account so you can see up-to-date streams of activity. Not only will this will give you the ability to order incomings and outgoings easily it can also generate reports automatically, which can be a major timesaver when Business Activity Statement (BAS) and tax time rolls around.
3. Create accounts for fixed expenses
Do unexpected bills land on your desk on a regular basis? Forecasting your fixed expenses for the year – think rent, utilities, lease repayments and the like – means you’re less likely to be taken by surprise. Tally up all of you these consistent expenses, divide them by 12 then open an operational bills account with a monthly auto top-up of this amount.
If this process works for you, then consider also having a dedicated account for other regular liabilities, such as superannuation and GST, which can really put a dent in your finances otherwise.
4. Map out key dates
If you can’t recall when your BAS is due or when you should lodge your annual tax return, create reminders in your calendar. Looking back through your files and adding important dates to your calendar will allow you to plan your schedule and avoid being caught short. Add time for doing paperwork as if it were a meeting schedule and treat it as such. It’s important to work efficiently to avoid late fees and to keep a clean business record.
5. Set some goals
Do you have things you’d like to spend money on that you know would improve your business – but never seem to have the cash once the bills are paid? Like with personal finances, consider setting a savings goal and putting money aside each month before, not after, you’ve sorted the essential expenditure.
You can use this technique to save for essential training for staff and yourself. Course fees and tickets to events tend to have incredibly high price tags and don’t often come with the luxury of time when it comes to securing the best price. With money set aside in a business savings account you will start to see opportunities to invest in things that ultimately give back to your business.
6. Get some help
The initial thought that goes through the heads of most business owners when it comes to seeking external help is that it’ll cost too much money. But consider this – in the space of just a few hours a professional bookkeeper could get through the same amount of work that would most likely take you two days. Think about the money you could earn in those two days if you weren’t busy doing your accounts – the bookkeeper is already saving you money.
Bookkeeping is also a tax-deductible expense. In other words, if you’re so busy that you’re falling over your accounting each month, then seeking help – if only for a few hours – is an absolute no brainer.
Like to learn about borrowing to expand your small business? Read more here.