Every small business should maintain financial records to know whether it is growing its revenue streams or not. However, this aspect of managing small businesses seems to be neglected by many business owners either because they don’t have time to get it done or they are not sure of the best way to do it right.
At the same time, most small business owners feel they can keep financial records by themselves to save money. Such businesses feel that getting help from professionals Byron Bay such as help is costly. With time, failing to maintain timely and accurate financial records can land them into problems with the law. Whatever approach you use to maintain financial records, how can you lessen financial stress in your business?
1. Opt for Business Accounts
Your business bank accounts should be separate from your personal accounts. The best way to do this is to have dedicated bank accounts for your business that allow you to separate financial activities associated with the business from your personal ones. Such accounts make it easy for you to monitor your business expenses and income. When opening a bank account for your business, talk to your bank and get advice on the best available. You can also make use of business online banking, as this makes keeping control of your accounts and payments much easier and less time-consuming. Again, speak to your bank about this.
2. Keep Complete Accounting Documents
Businesses should not just keep accounting records for the sake of it. Rather, they should ensure that their financial records provide sufficient information that explains their business transactions. Your accounting records should, therefore, contain information pertaining to all assets and liabilities that your business holds, reflect daily entries of all the money that is expended and received by the business as well as the expenditure and receipts that took place.
Further, your business should maintain and make accessible, when needed, supporting documents that include invoices, receipts, credit card statements, bank statements, and tax returns documents. It should also provide payment records for employees, stock purchase records and all financial statements that include the balance sheet, profit, and loss, and cash flow statements. We understand that keeping track of accounting documents might be overwhelming, so we advise you to outsource this task to a CPA professional
3. Do not Transact in Cash
Making cash transactions without having a system to ensure proper documentation can make it challenging for small business owners to maintain proper financial records. This is because it’s very easy to forget where and how the cash was spent when documentations are missing. Instead of transacting in cash, consider using cheques, debit cards or credit cards to ensure that there is a paper trail featuring each transaction.
This helps you track your expenses in that it makes transactions easy to follow. Compared to non-cash payment methods, cash transactions cause you to miss out on write-off that relies on documented proof. If you find yourself in a situation where you must use cash, withdraw the money on ATM and put a small note on the purpose of the withdrawal on the receipt for referencing purposes.
4. Set Specific Time to Record Transactions
If you opt to maintain your own business financial records, ensure that you schedule a time to so each week. Set a specific time when you review your expenditure and income and manage your account payables and receivables. Having a set schedule that you follow on a weekly basis enables you to stay on top of your business record. It also provides you with a broad overview of your business performance, enabling you to manage your cash flow properly.
5. Honor your Tax Obligations
Filing your tax records on time is important because it saves you interest or penalties due to late or missed payments. Keeping accurate financial records enables you to meet your tax obligations when they fall due. Pay attention to all expenditures that have tax components – including employees for payroll tax and vatable goods. To support your claims, ensure that maintain records and keep receipts of all your expenses. If you are dealing in vatable goods, ensure that you have good records as they make it easy to file your Value Added Tax returns each month. Consider using accounting software to automate and streamline your financial records. Doing this can ease the process of complying with tax requirements!
6. Hire a Good Book-Keeper
Consider investing in a trained book-keeper to support your accounting function as your small business grows. Doing so will benefit your business in various ways. First, having an experienced book-keeper will ensure that your financial records are always up to date and accurate. You also benefit from tax deductions and be able to focus fully on growing the business without worrying about keeping financial records.
7. Have an Emergency Account
Inability to handle emergency situations is one of the major sources of financial stress for many small businesses. But one of the most effective ways to manage emergencies is to create an emergency fund for your business, and include an allocation for this fund in the business budget. Often, it is advisable to set up a separate account for this where you make direct deposits on a monthly basis.
8. Keep your Working Capital Low
Working capital is basically the cash you need to keep the business running. It is the difference between your current assets and current liabilities. Developing the products or services that you sell requires capital when your customers don’t pay for those, they become liabilities. Businesses that give customers long credit periods need a high working capital compared to those that don’t. To keep your working capital low, consider demanding that your customers make upfront payments so your assets exceed liabilities. You can also achieve this by changing business processes like credit periods.
9. Manage your Debts
To avoid financial stress in your small business, prioritize debt management – always work towards reducing your debts. Bad debts can damage your business’s credit rating and cause you lots of stress due to payment struggles. As such, avoid carrying bad debts forward year after year. Rather, write them off the following year to maintain a financial position that is healthy for your business.
When you need to borrow to finance business activities, bear in mind that income from the business is not always consistent as external market forces can either dent or grow the demand of your products or services. As such, consider taking debt that you will be able to pay even when your business is not generating income for a month or two. It is always a good idea to work towards maintaining a balance between the cash that flows into the business through equity and the amount raised through borrowing.