Keeping track of your business’ finances will help you manage them effectively. However, not all business owners have a knack with numbers. According to Preferred CFO, 82% of businesses fail due to a lack of cash flow management skills and poor financial management in general. To address this issue, some business owners need to understand and record finances on their own.
Becoming a business owner takes more than just setting up a business of your own, since running a business isn’t just about selling a product or service. As an owner, you should have a clear view of all aspects of your business, especially finance. If you want to get involved in your business’s financial aspects, you must learn about the basics of recording its expenditures and other financial transactions.
Managing finances is a difficult task. It can be confusing and time-consuming. But, if you follow the guidelines of recordkeeping, you will learn and understand the process.
Here are some tips on how to record your finances.
Open an Account.
The first thing you should do is to open a bank account for your business. Separating your personal and business finances is a must. It would also be best if you open a savings and a checking account.
Open your business checking account on a bank branch that you can conveniently access anytime. You can use this account for all of your business’ financial transactions. Tracking your finances would be easy with a bank account since you can always ask for a bank statement.
Track Your Income.
After acquiring a bank account for your business, the next thing you need to do is track your income. Tracking your business income will help you understand your cash flow better… knowing how much money is coming in on a daily, weekly, or monthly basis.
You can use various software to record your income, or you can record it manually on a record book. By tracking your income, you would also determine the highs and the lows of your sales.
Audit your Expenses.
After tracking your income, you need to keep an eye on your expenses. Your business’ cash flow includes both income and expenses. Expenses are inevitable in business.
You’ll know how much income your business is generating if you keep track of how much money comes in and out. On the other hand, having a record of your expenses and proofs like receipts can lower your taxable income.
Summarize Receipts and Disbursements.
It is important to summarize all receipts and disbursements because one day it might come in handy. If you overlook some important details in your accounting ledgers, you will definitely find it on your summary.
The best way to store all your documents is inside a hard drive. Sort all paper documents and digitize as much as you can. By doing this, you can save space and money from buying office supplies for recordkeeping.
Storing your documents on an online file hosting platform will allow you to access all your financial documents whenever and wherever you are. Many software programs allow you to input all the necessary information and store it at the same time.
Storing all your documentation in one place will help you save time when you need to pull out some important documents. Financial records and documents are not the only things you should digitize, but also all documents related to your business for a more neat and organized system.
All financial records should be kept for as long as you can. When you are going to apply for a loan but have a poor credit rating, all the documents that you have kept might help prove your capacity to repay a loan.
Create a System.
Having a systematic operation and handling of finances will make your business run smoothly. Create a system that all your employees will follow, especially in finances.
Weekly Financial Meeting Is a Must.
Open communication would help all parties involved understand the financial status of a business. Income and expenses change now and then, that is why having a monthly meeting to track finances is essential.
However, instead of doing it monthly, it would be best if you do the task weekly to monitor any unwanted changes on your cash flow. Finances are the blood of your business, and neglecting this aspect may cause it to lose money, or worse, go bankrupt.
If you have a minimal idea of how recordkeeping works, following these tips will help you jump start your accounting journey. Everything can be learned, including the proper way of recordkeeping for your business.
Proper recording of finances could benefit you and your company in many ways. By having a record of all the finances, you will be able to plan and decide accordingly. Having a smooth system will also organize all your business’ documents for tax filing.