When you are running a small business, there are few issues as important as keeping a tight grip on the financials. Small businesses depend on financial control for effective future planning, current survival and to fund their growth. As businesses get bigger, the need for tighter financial controls becomes even greater.
At the same time, few small business owners have the time to do their accounts themselves, and they typically work with an accountant instead. Even so, for the purposes of tracking and monitoring financial performance in your business, there are a number of things you need to do on your own.
One of the most important things any business has to ensure is that it knows what money is coming in, what money is going out, and when this is happening. Both in a historical and future context, projecting cash flow is an essential skill for any business owner to master. This doesn’t just apply to new businesses either – even more experienced businesses can still face cash flow problems, particularly if these elements are not tracked and accurately forecast. Record cash flow as it happens on a daily basis, and use this data to influence your projections.
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As a matter of record, you are required to also keep details of your business expenses. This includes transaction data, such as the date, the amount of the expense, and the nature of the transaction. You will also need to collate receipts, invoices and other records to ensure you have details of all your transactions. This is essential for tax purposes, but also for business planning and accounting purposes. If you notice your expenses are rising year on year, you can do something about it, to make your business more profitable. But if you don’t track these expenses, you will lose track of how much you are spending, and in the process find it much more difficult to run your business.
From time to time in business, it will also be helpful to prepare quick accounts, for your own use if nothing else. From the likes of Stephen Dent Businessweek and others, you can imagine how this could be helpful. A profit and loss account, along with a balance sheet, are two instruments which allow you to compare business performance from one period to the next. This is great for comparison’s sake, and can really help influence your decision-making process for the future. With access to this information, business owners can identify courses of action that need to be taken to improve results.
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Practical financial tracking does not have to be difficult, and you don’t need to be a chartered accountant to make that work. Simply by recording incomings and outgoings, and by detailing the transactions that your business engages in, you can create the basis from which business decisions can be made. By keeping this data consistent and accurate, it allows you to develop fantastic insights into your business and into the way you operate.