It sounds silly but the first time I went on a business trip by myself was probably one of the most exciting moments for me in the past few years. There’s just something gratifying about having to handle professional matters completely on your own, without your supervisor breathing down your neck, even though technically, he was just a phone call away. It was the first time I fully understand why going down the entrepreneur road can be so appealing to other people.
Truthfully, while I enjoy the scattered moments of freedom afforded to me during those business trips, I don’t think it’s something that I would be comfortable with all the time. I’m okay with being responsible for my own livelihood but starting a business and being responsible for your employees is too daunting of a proposition. The financial well-being of your business is critical and for someone with little background in management and/or accounting, budget and tax planning can be quite a slippery slope.
Accounting for small businesses
Cash-strapped is the default setting for new businesses. Even if you’re starting a tech-startup that’s been lucky enough to be graced with generous funding and the ability to outsource your accounting to professionals, I would still argue that you still need to be aware of basic accounting to at least know what goes on in your company’s financials. A business owner that doesn’t know where the money is coming from and going to wouldn’t exactly be a reassuring presence to their employees.
When your business is still small is actually the perfect time for you to brush up on your accounting as at that stage, your financials won’t be as complicated as a Fortune 500 company. If you’ve hired a tax professional, get them to explain the basics to you as you go along so that in the future, you could be trusted in handling these matters by yourself. If you’re flying solo, here are some basic accounting tips you could use in managing your business’ financials.
Keep records of everything
While generally it’s easy to keep track of the ins and outs of your financials through your business’ bank account, it’s nowhere near as comprehensive enough as it should be. You need to have every financial record you have, including transaction records, receipts, invoices etc in one place so that you can easily monitor and manage them. Having everything in one place also makes it easy for the purpose of tax planning as you won’t have to look far is something’s missing.
There are a number of cloud accounting software you could use for this purpose, some free but mostly paid but it’s also a good idea to keep an offline backup and a physical record if there are any. Before you set this up however, it might be a good idea to familiarise yourself with basic accounting terms to help you with categorisation. It is important for example to separate your expenses into variable, fixed, intermittent and discretionary to see just where most of your money is going.
Categorise your receipts properly
Continuing on from the point above, the next step is to put those records you’ve kept into their proper place and sort them by date. Physical receipts have to be scanned first to ensure that they’ll be saved for posterity and to ensure that your digital and physical receipts can exist side-by-side without you having to constantly switch over from your computer and your ledger. Additionally, adding notes on the receipt itself to remind yourself what the receipt was for could help you whenever you decided to audit your books in the future.
Keep donation and charity receipts
Kindness might be its own reward but it could also lead to some tangible tax benefits for your business. Assuming your donations are in line with the requirements set out by the ATO, always make it a point to contact the recipient and request a receipt of the donation. It might seem somewhat boorish to ask for an evidence of your good deed but notable charity organisations normally provide these services so don’t be self-conscious about asking for this.
Periodically update your profit & loss (P&L) statements
Essentially, P&L statement is the easiest way you can track how well (or God forbid, how badly) your company is doing. If you’re just starting out, doing monthly P&L statements is a good idea to see whether your business is moving in a favourable direction or not. For businesses that are more on the stable side or businesses in industries that are marked by periods of inactivity, doing quarterly or yearly statements might be preferable.
By comparing P&L statements from two different periods, you can see the progress, or again regress, your company has made in the intervening time. When or if your business has recently undergone a sizeable change, a P&L statement is also useful in tracking the effect of that change in terms of numbers. While it’s more comprehensive than the balance sheet and cash-flow statements, it still doesn’t paint a whole picture of your company but using all three in combination should be able to give you an in-depth look at your company’s performance.