Running a successful business requires vigilance, especially when it comes to financial matters. The Federal Board of Revenue (FBR) and other government organizations require businesses to maintain transparent and up-to-date accounting records. However, managing your business finances goes beyond mere compliance – it’s essential for improving your business’s performance and profitability.
Good accounting systems offer invaluable insights, enabling you to maintain an up-to-date financial picture, analyze and optimize margins and expenses, track sales patterns, manage payroll accurately, monitor receivables and payables, and assess the profitability of different business segments, projects, or products. In essence, a good accounting system can help you effectively manage your business. Without an effective system in place, you’re letting money walk out the door.
Popular accounting software like Xero, Peach Tree, MYOB, and QuickBooks can significantly enhance your record-keeping. These systems are extremely powerful and will allow most business owners to improve their record-keeping and management to meet their requirements. However, they have their limitations and may not suit all businesses. If your requirements are out of the ordinary or your business is on a large scale, you’ll need to explore other options.
Regardless of the system you choose, it’s crucial to familiarize yourself with it to monitor your financial position effectively.
Some tips are, a) create a comprehensive ‘Chart of Accounts’ tailored to generate detailed reports, such as profit and loss statements, b) export features to send data to software like Word or Excel for further analysis and report generation c) opt for online transactions when possible, enhancing payment processes, d) maintain organized supplier and customer databases for efficient communication, e) implement job costing to monitor specific areas of your business with divisional accounts.
Once your accounting system is set up, establish a regular reporting process with weekly and monthly reports. These reports provide you with a quick snapshot of where your business stands and a framework to keep on top of your finances. Regular reporting is critical for the success and even the survival of your business.
Cash flow, not just profit, should be a focus. Without enough cash, your business will not survive. As the saying goes, ‘Cash in must be more than cash out, or you will be on your way out.’ In addition to weekly reporting, you’ll need to use your system to produce monthly reports to assess trading results. On a monthly basis, review the profit and loss statement, compare actual results with budgets, examine the financial position through the balance sheet, analyze the time it takes to collect debts, ensure timely payments to suppliers, assess the profit/loss for the period against your budget, set goals and targets for the coming month, monitor key performance indicators, and make sure you’ve put funds aside for tax payments.
Once you understand these aspects and see the difference they make to your business, you’ll eagerly anticipate the monthly reports, much like financial experts who find joy in preparing them. While you don’t need to prepare these reports yourself, reviewing them carefully is essential.
When running a business, always be prepared for a downturn in sales or unexpected bills. Put some money aside for a rainy day. Having reserves allows you to handle the ups and downs with ease. If your business is doing well and exceeding your expectations, resist the temptation to withdraw all surplus cash. The business needs funds for growth, development, expansion, and, most importantly, to survive the inevitable downturns.
To build a solid business with financially sound foundations, you need to find the right balance between ‘cash now’ and ‘cash later.’
Key takeaways from this are to Invest in a robust accounting system for compliance and business management. Embrace regular reporting with weekly and monthly reports. Budget and plan, updating budgets monthly and monitoring financial goals. Prioritize cash flow to ensure your business always has sufficient cash. Build reserves by setting funds aside for unforeseen circumstances.
Incorporating these practices into your business will pave the way for financial stability and long-term success. Don’t delay – take charge of your finances today!