Introduction
Do you want to get on top of your business finances? As a business accountant, I spend all day helping business owners with this. Many of them say the same thing. They want to understand their finances better.
That is a large topic. So, in this article, I share four practical things you can do today. This is not a complete guide, since that would take hours. Nevertheless, it makes for an excellent first foundation.
Some people may get intimidated simply because they are not numbers-oriented individuals. This is perfectly alright. Just ask yourself, “How do I gain awareness?” Then follow these four daily steps.
Step One: Do Your Bookkeeping
Bookkeeping is all about organizing your accounting. You should be using software such as QuickBooks and Xero. A spreadsheet works too. In any case, make sure you spend at least 15-30 minutes on it each day.
Is your accounting work being outsourced? Definitely, take this opportunity to address your accountants, bookkeepers, or virtual assistants. Send them whatever they ask for. In fact, getting documents from clients is one of our biggest frustrations. When you send them quickly, your data stays current.
Do you do it yourself? Then categorize your transactions or reconcile your bank in Xero. This gives you a general awareness of what is going on. You will also be surprised by how many things come to mind. For example, you may suddenly remember a cost you forgot.
As a numbers guy, I find bookkeeping therapeutic. It also gives you a real feel for your numbers. In fact, awareness is the key word for business finances.
Do your bookkeeping regularly and often. Nothing is worse than a pile of work at the end of the month or year. So, do it in the morning. We have also written other articles on making bookkeeping quicker with technology.
Step Two: Take Inventory of Your Cash
Next, check your bank balance. Your phone is enough. It sounds obvious. Yet many owners do not look from one week to the next. As a result, they are shocked by how low it has become.
Then ask yourself a few questions:
- Is this going to be enough?
- Can I pay wages, salary, or rent?
- Can I make the pay run and pay myself?
- Do people owe me money?
These questions prompt action. You may need to act today. On the other hand, you may find you are doing fine. Either way, you gain awareness of your cash. This also helps if you are planning some time off.
Checking your bank has another benefit. It sparks ideas. For instance, you may see that a customer paid you. Then you can connect with them and provide some value. It is also possible to discover that an invoice you have chased forever has actually been paid.
Step Three: Review Sales to Understand Your Business Finances
After that, look at your sales. What did you turn over last year? What about this month, or this week? Surprisingly, many owners do not know. They are simply on the grind.
It is important to know whether your turnover is increasing. It is also feasible to examine the monthly performance based on information gathered from spreadsheets, Xero, or QuickBooks.For this reason, trends can be recognized. For instance, August and December can resemble an empty desert.
Then ask yourself more questions:
- Is this year more enjoyable than last year?
- Am I on track for success?
- Otherwise, what steps should I take?
Your invoicing matters here too. It is a leading indicator. If you invoice too little, you will run out of money soon. Why? There is a lag. This month’s cash comes from last month’s invoices. So, keep invoicing and keep tracking the figure.
Are you not yet VAT registered? Then track this closely. In the UK, the threshold is £90,000 pounds in any rolling 12-month period for most businesses.
Once you go over it, you have 30 days to register. If you miss that window, you have a late registration problem. Consequently, you may face fines. Nobody wants that mess.
So, take proactive action as you near 85,000. It is a watershed moment. Congratulations, you have won the next prize. Now you have the challenge of dealing with VAT. If you want a big business, you will have to deal with it anyway.
Step Four: Check Who Owes You Money
Finally, set aside time every day to see who owes you what. This mainly applies if you invoice customers and let them pay later. However, there is a tip here even if you do not.
Can you not see this information easily? Then that is an instant action point. Look at how you keep your records. Is your program easy to check? Ideally, you would see it daily. Weekly or every two weeks is still good.
Then ask yourself some questions:
- Do I need to remind anyone about overdue invoices?
- Is my software up to date?
- Does a negative number in the report mean a customer overpaid?
- Do I have a system to remind clients to pay me?
Also, make it easy for people to pay you. Are your bank details on the form? Is there a clear due date? Otherwise, customers may not know how or when to pay. Making the payment process easy is also part of providing excellent customer service.
This step matters most. You can make all the profit you want on paper. However, if customers do not pay, you have no cash. Late payments are one of the biggest issues for small businesses. Over the past few years in the UK, they have been a constant problem.
So, think about how frictionless you can make payment:
- Is it easy for someone to pay you?
- Is it easy for you to collect and record the money?
Also, check what fees you paid to the payment platform. Again, it is all about awareness.
Conclusion
To sum up, these four steps build awareness. Bookkeeping, cash checks, sales reviews, and invoice checks all work together. Together, they improve your business finances.
It is suggested through a research conducted in about 2021 that it takes 59 days to form a habit. Research conducted around 2021 indicated that it took 59 days for a behavior to form. Eventually, you may even enjoy them.
We will build on this in future articles. For now, start with these four easy steps.
