The success or failure of your business depends on how well you handle the finances that you receive or generate. If you don't keep meticulous records, not only do you risk liability from not fulfilling legal requirements but also you won't know how your business is performing and what areas need improvement in order to grow. This article discusses common accounting questions raised by small business owners and provides tips to help you manage your books for financial success.
1. Get professional help with your books
You may think that you're able to handle your books just fine; you don't need an accountant or bookkeeper's input. However, it is important to have a knowledgeable and experienced person to help you keep records. As you start out, you can hire a freelancer or small agency to help you do the books once or twice a month (depending on how busy the business is). This allows you to save money while ensuring you have impeccable records.
2. Keep all documents
You are legally required to maintain your financial documents, either in soft or hard copy, for at least seven years from the relevant date of filing. A good way to do this is to have a safe place away from your business premises (such as a self-storage unit) where you index and file these documents. Cultivate this habit from the day you start; if you don't keep good records when the business is small, it'll be much harder to do so when you're bigger and busier.
Ensure that you buy a fire- and burglar-safe cabinet or safe to store them for additional protection. Also, you can scan and keep soft copies so that they're easy to retrieve on demand (you'll have to print them out for an inspector, though) and as a backup in case original copies are destroyed or stolen. Take note that cloud storage is vulnerable to hacking and take steps to protect your information from unauthorised access. Finally, never save your backups in the same place as the originals.
3. Don't keep all the money together
For a young business, you'll have money from various sources: your own capital input from savings or loans, loans or grants from friends and revenue from the business over time. Even if this money is in the same account, it's vital for you to know how much of it is borrowed (and therefore needs paying back) and how much is yours. Before paying yourself, be sure to fulfil any payback obligations.
4. Update records frequently
It is advisable that you update your ledgers (sales, purchases, returns, general, etc.) daily or weekly at worst; otherwise, the number of transactions will become too many to handle effectively. Additionally, updated records give you real-time information on the state of your business so that you can make better decisions, e.g., budgeting expenses, tweaking inventory purchases, etc.
Record-keeping is easy if you have someone on staff, but if not, let your bookkeeper advise you on the frequency with which he/she will come in to update your books. In the meantime, make work easy for him/her by ensuring physical documents (receipts, invoices, credit/debit notes, etc.) are well-kept. You can designate separate boxes/drawers for this.
For more information, contact your local accountants.