Unless your small business is an accountancy firm you probably are not very excited at the prospect of managing your business finances. But since most small business owners cannot afford to employ someone to run the financial side of the business then it is likely you will have to get involved to some extent. And that’s no bad thing; it will ensure you know just how your business stands financially, where you can save money and where you are making money. Understanding the financial landscape of your business will also identify new business opportunities.
Managing business finances is not particularly difficult but it does require a certain amount of rigour and it does require regular updates. Leaving any thought of your accounts until the tax return is due is a recipe for disaster and will prevent you from implementing tax planning measures that could save you money.
The first aspect of efficiently managing your finances is staying on top of invoices. Always, always invoice your clients on time; yes, it might involve some extra work such as preparing a weekly or monthly report but you simply will not get paid if you do not invoice your clients. Getting paid regularly is the only way to ensure the business has a healthy cash flow and having a healthy cash flow is one way to avoid your business going under.
To make the task of invoicing easier set up a standard template in Word or Excel. You should also set up a standard email reminder for overdue invoices; as customers become aware that you will chase invoices regularly they just might pay on time.
Just as you would like your customers to pay invoices on time, make sure that you pay your bills on time. This will help develop good relationships with suppliers, which can be invaluable for a small business. It will also help you to better manage the business’s cash flow situation. But don’t wait to be invoiced to record what you owe; keep track of all outstanding payments, whether or not you have received the bill. These tasks do not have to take up excessive amounts of time; set aside an hour or so each week to make sure you are up to date with the business accounts.
Whether you are using accounting software into which you can import your bank statements or just a simple log in a spreadsheet it is essential to keep track of all banking transactions so that you know exactly what they are. In a growing business it is impossible to remember what every transaction was for months down the line when your accountant queries something so you need a regularly updated record.
Even if you use regular suppliers and their name is included as a reference in each transaction that is not enough without each payment being tied back to particular items. It is also essential for cross-referencing to ensure your are operating your PAYE system correctly.
This is important for you so that you can understand where money is going to, which will help in identifying areas of the business that perform well and those that perform badly but it is also important to keep good records in the event of a tax investigation or dispute.
About the Author
This article has been written on behalf of Tuchbands, a leading accountant practice covering all industry sectors. They are experts in providing high quality operating your PAYE system correctly and tax services to businesses of all sizes throughout Greater London and the Home Counties. These London accountants have also helped large overseas companies to successfully establish themselves in the UK.