Keeping on top of the books

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Keeping on top of the books

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Why should you read this guide?

One of the most important elements of your business is finance. Without cash flow you will not have a business for long. Many people who start a business do it because they enjoy doing something and let's face it this is rarely finance. This guide will help you to plan for the financial elements of your business and tell you the most important things to do.

Background

Many business people hate doing the financial parts of their business and often leave this to someone else or ignore it for long periods of time. Many people feel that if they are sitting at their desk they are not earning money. However there are a few small things that you can do that will help you keep on top of the finance and let you see how much money you are actually making. You should put one day in your diary at the start of each month to work on the finances but the chances are it will not take you the full day once you get used to what you are doing.

Cash flow forecast (CFF)

Like it or not this is a very useful business tool. The critics will say that it is all guess work and to a certain extent they are right. However, when used properly a CFF can let you keep on top of your business and ensure you are continuing to make money. If you do one of these at the start of the year and use your knowledge of your business to make it as realistic as possible you can see how much money you are likely to make in the year to come. The important part comes in monitoring this throughout the year. At the start of every month you should amend this to show what actually happened the month before. This will let you see if you are making more money than you forecasted or less. If you are making less it allows you to plan to gain more business.

Bank reconciliation

This is another useful tool and one that is very easy to set up and keep going. You will need to use a spreadsheet again. Every month when you get your bank statement in you need to look at this closely to make sure you are monitoring money in and out. Start with the debits and write the date of every transaction on the left and along the top write what each payment was for e.g. heat/light or insurance. Then do the income figures and do the same. You can use this to balance your figures to make sure they match the bank balance.

The useful parts of doing this are that you can take the figures and put them as actuals in your cash flow forecast. You can also identify quickly any payments that you are unsure of and look into these quickly. This should be done during the day you have set aside at the start of the month.

Invoices

Decide how quickly you want to invoice your customers. Diarise this as a weekly/monthly job and stick to it. This is how you make money. Have a good system in place for recording payment and each time you sit down to do new invoices make sure you check that others have been paid - if not send reminders at the same time.

For invoices you receive you again need to decide when to pay these - are you going to do this at the maximum number of days allowed or are you going to do it at the end of the month? Again you should diarise each invoice for when you want to pay it and make sure you do. People chasing you for payment only takes up your valuable time.

Summary

There are a few things that you need to do with finance. These mainly involve monitoring the cash in and out of your business per the tools above. There is usually no need for business people to get involved in complicated accounting processes in their business - that is what an accountant is for. You do need to plan for time to work on these tools but you will be surprised how little time it takes.

Further information

The best person to speak to about the tools you can use is your accountant. Banks will give you their own business planning software which includes a cash flow forecast. Find out how to forecast accurately Manage your cash flow