Most entrepreneurs start businesses because they see a gap in the market they think they can fill. The knowledge they have from their careers may have empowered them to see the gap, and to understand how to exploit it, but may leave them short of knowledge in other, critical business areas.
Obviously, the business’ finances cannot be left to chance and operating them correctly will be essential should any new business owner hope to one day have a viable going concern. Setting up the finances correctly will go a long way toward ensuring there are no problems down the line. To this end, we bring you seven tips for setting up your finances in a new business.
When starting a new business, few things are as important as establishing your finances and making sure they are right. Building the foundation for stable, accurate financial reports and tax filing will see you in good stead in the future and establish the practices that will lead your company to success. Here are the top seven tips.
- Set up a deadline calendar
Whether you use a large whiteboard in your office, or a digital reminder service like Google Calendar, it is vital that you track which payments are due and when. Whether it’s your staff salaries, business loan payments or accounts payable, you need to know exactly when each amount is due in order to plan your cash flow accurately. Not having the cash on hand when a payment is due not only hurts your business credit rating but can also cost you more in fines or late-payment fees.
- Monitor your accounts receivable
Just because you have invoiced a client doesn’t mean that money is immediately coming in. Check the terms of each client’s contract to understand exactly when they are likely to pay. If a client pays on a 60-day cycle it is unreasonable to expect the money will come in before that and you therefore need to plan other ways to have cash on hand to meet payments. For each invoice make a note on when it is likely to be paid.
- Track your inventory
Inventory on hand is as much a part of your finances as the actual cash in your bank. Are you ordering too much and letting things rot on the shelves, or are you ordering too little and being forced to pay for rush deliveries to meet your orders? Tracking inventory will allow you to make better purchase decisions and streamline the operations of your business thereby reducing costs and stress.
- Consider opening two business bank accounts
Account 1: It is vital that you be able to track all expenses you are incurring in order to make accurate business decisions and monitor your business spending. To do this you will need one bank account in the name of the business dedicated to the daily running and expenses of the business. This will allow you to accurately reconcile the account at the end of the month and see whether more money is coming in than going out. Don’t have more than one daily operations account, and don’t use your personal accounts to pay business expenses – if you do, monitoring your cash flow, income and expenses becomes that much harder.
Account 2: The second account you should think of opening is a savings account, into which you will deposit a percentage of each month’s income to cover the taxes at the end of the year. The last thing you want to do is arrive at year-end unable to afford what you owe to SARS. Ideally, you should pay more than you owe on taxes alone into this account to also build a cash reserve. This cash reserve will see you through difficult times or cover unexpected expenses.
- Get a bookkeeper
Whether you get a bookkeeper or download bookkeeping software, it is vital that you keep track of all your incomings and outgoings. QuickBooks, Wave, Zoho Books, Xero, and FreshBooks are a few examples of the best apps for small business owners. Apart from making the issuing and tracking of invoices easier, knowing exactly which jobs have been invoiced, which have been paid and which are still owing as well as to whom, and how much you owe, will help you to plot payments, make cash flow decisions and price your product more accurately. Moreover, come tax time, you will have all of the paperwork necessary to give to your accountant to ensure as favourable a tax season as possible.
- Download a receipt scanning app
Now that your bookkeeper or bookkeeping software is tracking your invoices and accounts, you need to also track and accurately record your expenses that are made independent of your monthly suppliers. Fortunately, there are many receipt scanning apps that will help you to quickly and accurately record each business lunch receipt and stationary purchase, and then add them to an online database. Exactly which one you download will depend on your exact needs, but here are a few to get you started: Zoho Expense, Expensify, Wave, QuickBooks Online and Evernote Scannable.
- Download an app to record business travel
While you can get digital logbooks that you plug into your computer, it is far easier these days to simply download an app that will record each of your journeys automatically in the background on your phone. MileIQ, for instance, is great, because with a simple swipe after each journey you can record whether it was for personal or business reasons, and at the end of the year can print out a full record of all your travels and the related expenses.
Setting up your business foundation is essential for the health of your business. Once you have done all of the above, and accurately tracked your expenses and income for the year your accountant will have an easy time saving you money, ensuring you only pay the taxes you owe and not a cent more.