One of the basic fundamentals that most entrepreneurs and business owners (especially women) are lacking in is managing their finances – both business and personal. For many business owners, finances are often not one of their strengths. Generally their passions involve tackling the big problems and developing big visions. Not so much sitting around looking at the numbers!

But not having a handle on your finances is most likely the thing that is keeping you up at night and causing the knots in your stomach. The fear of not wanting to check your bank account balance because you know the money is going out just as quickly as it’s coming in. You’re working the hardest you ever had but it’s definitely not being reflected by the number in your bank account.

One of the most critical aspects of growing a successful sustainable business is being able to manage your company finances. It involves not only understanding what your numbers mean but also how best to manage them. There are many challenges involved with starting up and growing your business but nowhere are the challenges greater, than knowing how to handle your company’s financial resources.

You don’t need to become a qualified accountant but a successful business owner has at least a basic understanding of certain financial and accounting principles. It’s vital that you know where your company is positioned financially prior to making any decisions that will have a material impact on your finances.

Below are some 3 things that you can start doing today to make sure you have a handle on your company’s finances:

1. Just Get Started

One of the biggest mistakes you can make as a business owner is procrastinating and putting off looking after your bookkeping needs. Although you would much prefer to be developing your big vision, if you want to have a successful business you need to spend a bit of time getting a handle on your numbers. To help ease the pain, there are various accounting software package available that can make this job a little less mundane and time consuming.

Some of the main ones are MYOB, Quickbooks and my preference Xero. If you break down the bookkeping into categorising expenses, paying employees and issuing invoices it becomes a lot more manageable and easier to do. The benefit of using a software package is that you can also download the necessary financial reports. Three of the most important financial statements you need to be regularly reviewing and analysing are the Balance Sheet, Profit and Loss Statement and Cash Flow Statement.

These reports will provide you with a good view of the financial health of your company at any particular time as well as highlighting any possible areas of improvement. It’s really important that you keep your bookkeping up to date rather than waiting until the end of the financial year or when your quarterly Business Activity Statement (BAS) is due. As this may reduce the quality and therefore the usefulness of financial data to your decision making.

2. Understand Your Cash Flow

Do you know if your company has enough cash to survive? Cash flow problems are among the top reasons for why companies fail. In business it’s vitally important to remember that CASH IS KING. If you find yourself in a position where you are unable to pay all debts as and when they become due and payable, you could find your company on its way to closing its doors. Strong sales or profit margins won’t help if your company doesn’t have the cash on hand to pay its bills and invest in its future.

That’s why it’s imperative that you maintain an accurate cash flow statement and cash flow forecast to help you manage the everyday ebb and flow of your business. Especially if you expect a peak or dip in your business. Looking at your finances this way allows you to prepare ahead by scaling your business in either direction. The cash flow forecast can also help you prepare for lean seasons so you’re not struggling to get by while you wait for business to pick up again.

Some quick ways to help improve your cash flow are:

• 12 Month Cash Flow Forecast
  • Ensure that it shows the forecasted cash flows for each month in the 12 month period. If you’ve been in business for longer than a year, you can review your company’s financial history and use that as a benchmark and then make any necessary adjustments as required.

• Debtors
  • Invoice as soon as your products or services are delivered. If you generally issue invoices at the completion of your services or delivery of your products look to introduce terms of 50% payment upfront and 50% payment at the completion.
  • Follow up slow paying debtors as soon as possible – the longer you leave it the longer you go without being paid.

• Expenses
  • Review your operational expenses and identify any expenses that you can remove or reduce. Make sure that what you are spending money on is in line with your company’s values and vision.
  • From your cash flow forecast – look at the forecasted expenses for the upcoming months and make sure you have sufficient funds available to meet those expenses. If not, look to increase cash sales, collect any outstanding debtors or reduce expenses. Or, if the upcoming months result in a surplus, make sure you save a portion of that surplus to cover any shortfalls you have forecasted for the future months.

3. Set Up Digital Jam Jars

A lot of business owners can get themselves into trouble by not having sufficient funds to satisfy their tax debts. Simply because they spent those funds on something else. The money comes in and the business owner forgets to plan for the fact that it isn’t their cash and utilises that money for other business or personal expenses and forgets about the tax debt. That is until the next quarter rolls around and they don’t have the funds to pay the GST they owe and have to go on a payment plan.

Let me tell you the last creditor you want on your books is the Australian Taxation Office (ATO)! The best way around this is to regularly set aside a portion of your revenue. Set up a Digital Jam Jar – an online high interest account – and name it GST. Then each fortnight transfer the GST component from your sales to your Digital Jam Jar. As it’s likely that you’ll be incurring expenses during the quarter you will be able to offset part of the GST you owe to the ATO with the GST from those purchases. However, if you’re new to business it’s a good idea to transfer the full GST amount from your sales to your Digital Jam Jar to begin with.

Then once you have a good idea of how much you generally need each quarter to cover your GST requirements you can reduce the amount of GST from sales that you’re transferring to your Digital Jam Jar each fortnight. Transferring funds to your Digital Jam Jar each fortnight will ensure that you have the funds available when it comes time to pay your quarterly BAS and you won’t have to be stressing to find the funds or having to take the funds from other areas of your business. It’s also wise to set up another Digital Jam Jar and to get in the habit of transferring a portion of your revenue to cover your annual income tax bill as well as your employee superannuation payments. That way you’ll already have the funds available and won’t get lumped with huge payments that you can’t afford when the times comes to pay them!

3 Actions You Can Do Today To Get A Handle On Your Company’s Finances

1. Schedule in a time this week to get your finances up to date and entered into your accounting software package. If you’ve got a few months to catch up on then break them down into manageable parts to avoid any overwhelm. Start with one month and then move to the next month until you’re all up to date. Then going forward schedule a money date with yourself to ensure you don’t get behind and that the data in your financial statements is as accurate as possible. If it’s not your zone of genius, add it to your list of tasks to delegate and make it a priority to engage a bookkeeper as soon as it’s financially viable for you to do so.
2. Regularly review your cash flow statement and prepare a 12 month cash flow forecast so that you’re able to be proactive rather than reactive when it comes to your cash flow position. It will ensure you’re able pay your debts as they become due and payable and if you aren’t able to, provide you with sufficient time to make other arrangements with your creditors.
3. Set up your Digital Jam Jars and start transferring a portion of your revenue each fortnight to your Digital Jam Jars to cover your upcoming tax bills (and superannuation bills if you have employees). Automating this process will save you time and ensure that the money is actually being deposited into your Digital Jam Jars. Remember, the last person you want as a creditor is the ATO!

Once you’ve had a chance to complete the Action Steps, come over to the comments section and let me know:

What do you struggle with most when it comes to your finances?

P.S. If you have friends, clients or colleagues who you think will benefit from the tips above and get a handle on their finances, forward this email. They’ll thank you for it!