Most new business owners and entrepreneurs learn the basics of funding, bookkeeping and finance as they go. To help simplify that, here are six quick Do’s and Don’ts to keep your business’ financial hygiene in check:
1. DON'T Mix Personal and Business Assets
It doesn’t matter how big or small you are, it’s important to keep these two separate and will save you a lot of headaches down the line. If you’re just starting out, then you should have pretty clean finances so separating these out will be relatively easy.
Create a separate business account. This will give you a separate credit history specific to your business and will (probably) give you better borrowing power when looking for finance options. Having this separation will also make the tax-time headache much easier to deal with. Tracking deductible expenses will be much easier with a business account.
If you’re a sole trader or independent contractor, it’s probably a good idea to deposit a percentage of your pay into a business account. This will cover any tax obligations at the end of the financial year.
2. DO Invest in Technology
There are heaps of business apps and software that can automate a range of different processes, making your life easier and save your business a fair chunk of cash. A study done by Converga found that business using digital invoicing solutions had 88% lower invoice processing costs and 75% faster invoice processing times.
Digitising even every day, paper-heavy processes can end up saving time and improve efficiency. This can be as simple as consolidating reports and documents into the Google Suite (Drive, Sheets, Docs etc.).
Using a digital accounting platform is one of the best things you can do to improve and simplify your business finance management (and make it considerably easier on yourself). Online accounting software like Xero, MYOB or Quickbooks makes it really easy to track all aspects of your business’ financials, including bank feeds, payroll and invoicing.
If your business uses an electronic payment platform, then look for accounting software that it can integrate with (most services can integrate with each other, but always double-check before you choose one). This will make managing sales transactions seamless.
Most businesses won’t actually need all of these different apps, but choosing the right ones for yours will go a long way to simplifying your finances.
3. DON'T Neglect the Tax Office
Tax time probably isn’t a small business owner’s favourite time of year; in fact, most business owners dread it. However, now more than ever, it’s important not to neglect your business tax obligations. The Australian Tax Office is coming down a lot harder on businesses with overdue tax debt and new tax laws mean there are some pretty serious penalties for not paying.
Keeping your tax obligations in the back of your mind throughout the year will make it much easier when the time comes to do all the paperwork. Cloud accounting software can simplify this process, reducing the amount of time and errors on your tax return. Making logs or notes of taxable items throughout the year will also make lodgements easier and most software will have features to help you do this.
The Australian Tax Office has a bunch of assets to help you through your tax return process, but it’s also worth considering whether or not to hire a tax professional. They can often make the whole process go a lot quicker, prevent any costly mistakes and even save you a bit of money in the long run.
If your business already has outstanding tax debt, it may make sense to take out a loan to help refinance the debt, to avoid ATO penalties and pay back incrementally without harming your business’ cash flow.
4. DO Consistently Review Your Business Plan
Your business plan is like your roadmap, but you shouldn’t just set your plan once every year and only check it every few months. There will inevitably be road bumps and wrong turns so it’s important to consistently reference and (if necessary) review your business plan.
Your business plan should include things like:
- A projected balance sheet with assets and liabilities
- Sales forecast
- Projected income analysis
- Budget projections
- Break-even calculations
There will be certain items, such as budgets, which you’ll be checking on weekly, but it’s important to have long-term financial goals and above all, a strategic plan for what your goals are and how you plan to achieve them.
You may set your financial plan at the beginning of the financial year but then find a sudden surge of growth after six months, in which case you would need to review and update your projections, budgets etc. Having a business plan, even if it’s flexible and fluid, will help keep your business on track and end-of-financial-year consolidation much easier.
5. DON'T Fall Behind on Payments
Seems pretty obvious but staying on top of your payments goes a long way to maintaining a healthy cash flow and ultimately keeping your business running. Falling behind on payments to other businesses, banks, and even the ATO, can cause you to accumulate debt, interest and even damage your credit score.
The only way to keep on top of payments is by staying organized and monitoring your cash flow. Make sure you’re managing your customer debt as well. If you customers owe you money, make sure you know how much and how far away the payments are.
6. DO Monitor and Measure Performance Regularly
There’s no point putting all your money into running an awesome business if you don’t know what’s making it so awesome. As a business owner, it’s crucial that you monitor the movement of your money and know that you’re getting a return on your investment.
Continually monitoring your business’ financial performance will allow you to compare against market trends as well as previous performance. By looking at your business’ past financial statements, you can project future revenue, expenses and cash flow.
Having historical sales and financial data will also allow you to review aspects of your business to improve efficiency. This could include increasing or decreasing product costs, changing suppliers or shifting budget around.
Running your business is a round-the-clock job. Keeping track of your finances should help you save you money, but more importantly, help you be more efficient with your time, too.
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