By Fergus Cleaver
It’s no secret that part of the reason you started your own business was to spend your time doing what you love.
Of course, you can’t live on love. Your business has to be profitable as well. Being profitable sometimes means you have to do the boring stuff, too. And one of the most boring, at least by reputation, is staying on top of the books.
If you’re like a lot of entrepreneurs, you save the business accounting chores until last – if you get to them at all. You know better, of course. If you don’t stay on top of the money coming in and going out, your business is in danger of collapse.
Follow these five tips to take control of your business finances.
Think like an accountant. How does an accountant think? An accountant asks questions. An accountant weighs risks.
“Accountants analyze, ask “what if” questions and engage in critical thinking. It’s not about want here, it’s about facts.” – Fergus Cleaver
The great thing is that once you’ve trained your brain to think like an accountant, it becomes second nature.
- Double-entry bookkeeping is the way to go. If you’ve looked at the books and wondered where all the money’s gone, you’re doing it all wrong. Sure you made a big sale. But how much money has gone out the door to suppliers, contractors and employees?
A successful business is based on an intricate balancing act – it brings in more money than it spends. The only way to get a clear picture is by using a double-entry bookkeeping system. Double-entry is also a great tool for detecting accounting errors.
- Develop a budget and stick with it. A budget not only helps you stay on track, it keeps you from making those impulse purchases that so often cut into cash flow. If you don’t have the money in the budget for something, don’t buy it.
- Put money aside for emergencies, taxes and future expenses. Don’t think in terms of “if” an emergency happens, but “when.” A vital piece of equipment will break down. There’ll always be an expense you didn’t plan for. If you already have money put aside, you won’t be scrambling when it happens. You’ll also need money for taxes and future expenses, such as computer upgrades.
- Establish an invoice policy and enforce it. Your invoice is sent, that’s money in the bank, right? Wrong! How many overdue and outstanding invoices are out there? Sending invoices is great, but if customers aren’t paying, what good are they? Establish policies beforehand and take action if payments are late. For example, you may establish a 30-day pay policy and assess late fees for late payments. Policies should be clearly stated in writing on each invoice. Don’t hesitate to call late payers as well. It’s your money. You can’t afford to let it slide.
Fergus Cleaver is a shareholder in Cleaver Partners, an international accounting firm based in Auckland, New Zealand.