When running your own business, there’s a lot you need to think about. Financial health is effectively the backbone of your business. Without a clear understanding of your financial health, how can you make proper and informed decisions? How can you know if your business will be profitable in the future? How can you invest in your business if you don’t really know if you have sufficient funds to pay the investment?
I often tell my clients that to gain a clear understanding of your business’s financial health, it’s really important that you track your business expenses. Making sure you track your expenses on a regular basis will ensure you have a good handle on the cash flow of your business and it also helps when you need to submit your year-end tax returns.
If you are spending more than you are earning, then the likelihood of your business falling into serious financial trouble is highly likely. Avoid this from happening by making sure you track your expenses on a timely basis.
Here are six SRM top tips to help you manage your business more efficiently:
Keep your personal and business expenses separate
Keeping your personal expenses separate from your business expenses is vital for ensuring you are tracking the right payments. One way you can do this is by opening a separate business bank account and applying for a business debit card and/or credit card so you only use this to pay for business expenses.
Ensuring all your revenue is saved separately from your personal current account and expenses are paid from this account too means you will have a far better understanding of the overall health and wealth of your business.
Nowadays you don’t have to pay costly bank fees for opening business bank accounts. Challenger banks like Revolut and Tide offer free business bank accounts with free debit cards too. They also offer great mobile apps making business banking a breeze. Check them out!
Know how to define what is in fact a business expense
Understanding what is and what isn’t a business expense is important so that you only track and report on expenses that are aligned to your business’ activity.
You may find that many of your business expenses are tax-deductible, so it makes sense to track your business expenses as soon as they arise, or are accrued. If you are in doubt, get in touch with SRM for some guidance on how to apply the expense.
Record any business transactions promptly and keep your receipts
The best way to manage and track your business expenditure is to record them as soon as possible.
If you’re making lots of business transactions i.e. purchasing from an online store, writing a cheque to pay a bill (yes people still use them), using your credit or debit card to purchase stationery from office supplies, or paying for a business lunch at a local restaurant, it’s vital you record these as soon as you can. It’s really easy to forget what certain payments are for when you don’t keep track of them. Especially if you pay cash or cheques into your bank account. Make note of what they are immediately. This will help when you come to complete your end-of-year tax. If you are using accounting software you can even take a quick photo of your receipt using your smartphone and upload it to your online account in a matter of seconds.
Use accounting software
Don’t leave your accounting to guesses, subscribe to an accounting software package to track, report and record all your business transactions including expenses, invoices and so much more.
Xero is well-known accounting software that is really easy to use and great for small business owners. At less than £22 a month, you can create invoices easily to email clients and track all your expenses and apply them to various expense categories. The data is then magically transposed into all the reports you need when submitting your annual statements.
Find one that offers a mobile app
Xero offers a free mobile app to accompany the paid monthly subscription it offers. Track your expenses on the go by literally uploading an image of a receipt and creating a business transaction as soon as they occur. You can even generate invoices on your mobile too. It’s great when you are on the go! There are loads more options of accounting software that include mobile applications, so take a little time to conduct some web research and find the best tool to suit you and your specific needs.
Hire a bookkeeper
If you’re a bit of a technophobe and find using online accounting software a little scary, hire a bookkeeper to do the work for you. It will be their job to stay on top of your company’s expense tracking and offer you advice on the best way to manage your business’ financials.
As credible trained accountants and/or bookkeepers, they will also be able to offer you advice on how to improve your financial situation, making you aware of issues and opportunities as they arise.
What’s more, if you would like, they can provide you with regular weekly and/or monthly reports so you can look for trends and address them accordingly.
As a small business, you may not need to hire a full-time bookkeeper, so it’s worthwhile considering a freelancer or engaging in a service that lets you pay by the hour for bookkeeping services as and when you need them most. They can also help you get the most out of your accountancy package. Setting up dashboards and reports.