Finance and Accounting Tips for Your Business
Did you know: The first written text in history was done more than 5,000 years ago and is believed to have belonged to an Accountant who was making a record of supplies. It read, “A total of 29,086 measures of barley were received over the course of 37 months. Signed, Kushim.”
Financial management involves the planning, organizing, controlling, and monitoring of a business’ resources so as to achieve business objectives. Good financial management is therefore important for the survival and growth of any business but has proven to be a challenge for most small business owners. This can be attributed to the fact that most owner-managers are more adept at handling the operational/technical side of their business, thereby neglecting accounting and finance.
With this in consideration, below are some general guidance tips to guide the financial management of your business.
- Have a Clear Business Plan
A business plan will help identify your business activities, how much money you need to finance these activities, and will identify sources of financing. It will also help you keep track of where your business is currently and where it is headed over the next few years.
- Keep Up-to-Date & Accurate Accounting Records
Up-to-date records give the owners, employees, investors, and other stakeholders a clear picture of the financial state of the business. One way to achieve this is to automate the capture of invoices and receipts; another way is to link your business’ bank accounts to your accounting software.
Therefore, a good accounting system should help you keep track of expenses, debts, creditors, and save on time and costs. Accounting software automates record-keeping and digitally stores records, making it easier to document and track transactions.
- Set up Good Internal Controls
Every business must adhere to a set of rules/accounting standards/financial reporting standards. This provides consistency for the purposes of auditing and taxation.
A lack of/having weak internal controls can expose your business to employee fraud or theft or even lead to legal problems if financial reporting standards are not adequately adhered to.
- Monitor Your Books
Regularly review and monitor the bookkeeping done to familiarize yourself with your business’ financial health and identify potential fraud activity in good time. Also closely monitor bank reconciliations and the listing of outstanding invoices to prevent wasteful spending or embezzlement of funds.
- Know Your Financial Position
On a day-to-day basis you should know how much money is in your business’ bank accounts, the sales made, levels of stock, and costs or expenditures incurred. This will ensure that you are well aware of your business needs and that you avoid financial difficulties creeping into your business.
- Stock Control
This ensures that the right amount of inventory is available at the right time and that funds are not tied up unnecessarily in dead or slow-moving stock. To achieve this, a system should be in place to track stock levels and alert when levels reach a certain minimum threshold.
- Evaluate Business Performance Using Financial Statements
The financial statement shows a company’s income and expenditures to determine profits; the balance sheet gives a snapshot of the assets, liabilities, and shareholders’ equities at a certain point in time; and the statement of cashflows brings together the income statement and the balance sheet to show the inflow and outflow of money and whether the business has sufficient money to meet its current obligations.
- Manage Your Accounts Receivables
If the company’s cash is tied up in unpaid invoices, then the business will face cashflow problems, a leading cause of business failure. To avoid this, clearly communicate your credit terms to clients from the onset, promptly issue invoices, and use a computerized credit management system to help keep track of customer accounts.
If the company is struggling to collect its money from debtors, then a change in strategy or payment terms may be necessary to entice the customer. E.g. offering a term of ‘2/10 Net 30’ will mean that if the customer pays the invoice within 10 days, they will receive a 2% discount off the total bill; if not, the terms are full payment due in 30 days.”
- Optimize Your Accounts Payable
Accounts payable are a source of cash for your business and this cash can be re-invested in the short-term to earn higher returns. To optimize your accounts payable; take advantage of the credit terms offered by your suppliers and hold on to the cash for as long as is possible, while making sure to take advantage of early payment discounts for vendors who offer them.
- Invest in Growth
It is important to always keep an eye on the future by re-investing profits into identified growth opportunities. This will improve customer retention and brand loyalty due to improved products and levels of service, as well as reduced employee turnover as there will be career growth and development.
While investing, it is prudent to keep an eye on the Return on Investment (ROI) to have a clear picture on whether the investment is paying off or whether to discontinue it.
Conclusion: The more often a business reviews its numbers, the better will be its financial health and this will in turn drive long-term success.