As small business owners, we sometimes focus on our immediate desires to grow our businesses and not in keeping our financial “house” in order. Maybe some light dusting is needed or perhaps a total remodel is in order. In this post, we will discuss five essential things every business owner should verify is being done with their business financial picture.
1) Stay on top of receivables
Getting paid is always an exciting part of running a business. However, what isn’t as exciting however, is keeping track of your receivables on a consistent basis. When you issue an invoice to a customer, a receivable is created in your Accounts Receivable account on your Profit and Loss report. Once the customer pays the receivable, it should be applied against that invoice and marked as paid. In practice however, this is easier said than done. Customer deposits are often left to reconcile later on since there’s never enough time in a day.
2) Hire a professional to do your taxes
Small business owners often try doing their own taxes to save money. In reality, not hiring an accountant can cost more than the annual tax accountant fee than what they are saving. You may not claim all the deductions you qualify for, or you might underpay your tax bill—leading to penalties and other fees. Not to mention, the accountant’s fee is a tax deduction itself!
Paying for a professional bookkeeper will likely help keep your costs of an accountant at a minimum, since they do all the prep work. Plus having another pair of eyes is never a bad thing, especially when it comes to finances and taxes. The success of your small business depends on the accuracy and organization of your financial paperwork.
3) Think about your people
When you’re delving into your businesses expenses, don’t forget to properly track what is likely one of your biggest expenses: labor. Whether you’re paying a full staff or you’re the only one on the payroll, make sure you’re tracking all the associated costs such as wages, benefits, overtime, etc. By tracking your spending on labor, perks and benefits, you may find you have more money to incentivize your employees — or that you’re outspending your budget. Either way, doing the math now can help you make better decisions later.
4) Pay attention to what your business reports are telling you
Many business owners focus on growing their business and running the day-to-day operations without a thought of looking at financial reports. Have you heard the saying, “Those who don’t know history are doomed to repeat it.”? Sure you have. Well, financial reports show the history of your business. Your P&L, or Profit and Loss report, shows you a summary of your sales, expenses, and finally your profit. This is probably the most used financial report used by business owners. But that profit number also flows over to a Statement of Cash Flows report. This shows you the actual cash you stated with at the beginning of the period (year, month, day) and the amount of cash at the end of the period. This helps you determine if perhaps you are collecting your accounts receivable fast enough, or paying bills to soon for the good of your company.
Study these reports. Become an expert in your company’s history.
5) Record cash expenses
It’s crucial for entrepreneurs to track all expenses related to running a small business so these costs can be subtracted from total income at tax time, thus saving you money spent on taxes. It will also help you keep a better sense of overall profitability throughout the year. While credit cards, debit cards, and checks from your business’s bank account are easily accounted for with your bookkeeper, it’s easy to overlook expenses paid in cash. Most commonly, some of these expenses are not recorded and thus forgotten—causing the business owner to overstate income for the year! Be sure to develop a method for tracking these cash expenditures.