Do you want to be scrambling to find receipts the weekend before your taxes are due? Probably not. In this video, learn how to implement simple financial tools to keep you on track, all year round.
- There are lots of things you can do to help your business succeed and a lot of them are simple everyday actions that make your business easier to run. So here we go. Open a business bank account right away. Do not use your personal account for business expenses. It's a horrible habit and makes tracking expenses very complicated. It may also put you in hot water with the tax authorities later. Get a debit card for your business account and use it only for business expenses. Get accounting software. You can use inexpensive online tools to start but at some point you'll probably need to move to something more robust.
But start to keep track of expenses right away. If you fall behind it is very difficult to catch up. Keep receipts and write on the back of each what it was for. Have receipts for every expense. It'll help tremendously if you ever get audited. Once you put the expense into your accounting program file the expense away in folders separated by expense type. Don't fall too far behind on these or else you'll be swimming in paper. Use your accounting program to make a budget. As you go through the year look back at your budget and see how close your actual numbers are to it.
Review your finances at the end of every month and make sure you know how much cash you have in the bank and what your cashflow is. Also complete the year by reviewing your budget against your actual full year profit and loss and income statements and then do it all again for the next year. Figure out your key performance indicators and track them. Keep it to four or five main indicators. These should be the most important variables that will show how your company is doing. Make them wide ranging so, for example, you measure things from income, customer growth, costs, website traffic, and maybe inventory terms.
Try to have one person responsible for each indicator and have them report on them each month with not only the numbers but strategies for improving the numbers as well. Be best friends with your banker. They are your front line defense against financial problems. A good banker will call you if something goes wrong like a check is about to bounce or a suspicious transaction comes across her desk. She will also be the one to offer you a line of credit which is a terrific thing to have at your disposal if you ever need it. If you have a good relationship with your banker she can help smooth out financial issues that may come up.
Have two people sign off on big expenditures. Set up a procedure to require any expense over, for example, a thousand dollars to be approved by two people. Fraud can come from both inside and outside a company. Having two people sign off on large expenses ensures that all expenditures are legitimate. Be careful with your books. Don't play games trying to claim as many expenses as you can run through your company. Your books should be a true reflection of your business and will tell you a lot about what's going right and what's going wrong.
If you start to play games trying to reduce income in order to avoid tax you'll be destroying the only true way to gauge how your business is operating. Besides if you ever want a loan your bank is going to look at your earnings and if you've messed with your books in order to avoid tax you could be ruining your chance of getting a loan as well. So keep your books clean. The ultimate tip is that, in the end, as long as you're careful, diligent, and honest you should have an easier time managing the finances of your company.
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