No matter how excited you are about your new startup, one thing you can’t afford to ignore is the financial side of the business. Cash flow and profit margins are critical to the success of your business. Unless you get a firm grip on the numbers, it won’t be long before things go wrong.
You probably have a business plan, but does it define your financial strategy moving forward? If not, now is a good time to look more closely at the figures. A business can’t grow without working capital, and the only way to ensure you have sufficient cash flowing through the business is to monitor income and expenditure. A well-run accounting system will help you do this, so it is a good idea to set things up right from the very beginning.
Open a Business Bank Account
All too often, entrepreneurs don’t draw a firm line between their personal and business finances. In the early days, this won’t be too much of a problem, but once the business starts to grow, you will have a hard job separating business and personal expenditure for tax purposes. To prevent problems further down the line, open a business bank account from day one. Pay everything out of your business bank account and apply for separate credit cards.
Implement a Bookkeeping System
Small business bookkeeping is a bit of a mystery to some people, but at its simplest, all you need to do is keep a record of money in and money out. If your business is relatively simple, you might get away with using spreadsheets to record income and expenditure, but once the business starts to grow, it is a good idea to switch to an accounting package.
There are various accounting software systems available for small businesses. Sage is very well-known, but there are others, including QuickBooks, ClearBooks, and Zoho. Read the reviews and see what features each software solution offers. Some may offer free trials, so have a go and see how intuitive the system is.
It’s perfectly OK to have a go at keeping books the old-fashioned way, using ledgers and a calculator, but most modern accounting systems are very easy to use with digital interfaces so you can update your accounts on the move.
If in doubt, ask your accountant which system he or she recommends. It’s easier for both of you if you use a system that integrates with their accounting software, as it makes it nice and simple to send over essential information at the end of the tax year.
Hire a Bookkeeper
Not everyone has a head for figures. Some people break out in a cold sweat the moment they see a column of numbers or their accountant asks them to take a look at a balance sheet. This doesn’t matter as long as you are willing to admit you need help with the finances. If you do, hire a bookkeeper to maintain the accounts. It is better to pay an expert to keep track of the financials rather than struggle to keep the books or make sense of the accounts. However, if this is not an option because money is too tight, consider taking a few courses in bookkeeping or basic accounting. A little knowledge goes a long way.
Maintain Accurate Records
It should go without saying that keeping accurate records is essential, but it is surprising how many small startups fail to meet their statutory obligations. All businesses are obliged to maintain accurate financial records. If you are singled out for a tax audit, the tax inspector will not be impressed if you plead ignorance and say you don’t have any records of your business’s income. In fact, it could lead to a serious fine and even a stint in federal prison. Do you really want to take that risk?
A regularly updated set of accounts is the absolute minimum. You also need to keep copies of all invoices and receipts, and any other relevant paperwork. Be organized and efficient. Implement a filing system that’s easy to use, so you can pull out the paperwork when needed. The more organized you are, the easier it will be to deal with your end of year accounts. Accurate record keeping is also the best way to ensure you don’t pay too much or too little tax.
Be Aware of Your Tax Obligations
All businesses have to pay tax; that’s a given. The tax man likes to take his cut and if you try and evade your responsibilities, sooner or later the tax man will catch up with you. Tax law is complex, so it is worth using an accountant to prepare your end of year accounts. If you are not sure who to use, ask for personal recommendations from the local business community. A good accountant will save you a fortune, but a bad account will cost you dearly.
Establish a Credit Control System
It doesn’t matter how many clients you have – if none of them are paying their invoices, the business is in trouble. Credit control is an aspect many business owners fail to tackle effectively. Nobody enjoys calling up clients to chase unpaid invoices, but it has to be done efficiently and at the right time. If you find it hard, employ someone else to run your credit control department.
The important thing is to track unpaid invoices. Establish a credit control system whereby unpaid invoices can’t slip through the net. If you don’t, your cash flow will suffer and it could jeopardize the future success of the business.
Run Regular Financial Reports
Keep a close eye on cash flow and income/expenditure. Run regular reports and monitor how well the business is performing from a financial perspective. That way you can tackle any problems before they snowball into major issues.
Start as you mean to go on and don’t be afraid of hiring an accounting specialist. You might think you can do everything, but it’s better to accept when you need help and concentrate on the aspects of the business you are good at.