I have found that information is best given in small doses so here we will only be looking at the first three basic financial habits that every company must have in order to function effectively. Adopting these basic habits will enable you to extract useful information from your day-to-day accounting records and will help you make smarter financial decisions.
There is Confidence in Knowledge
There are 5 Stages and here is Stage Zero the launch of your financial skillset
The launch covers what a company should set up in terms of financial management but unfortunately many companies miss these fundamentals:
The primary objective in making money in business is PROFIT, which is the generation of more income than it costs.
That profit then has to be turned into cash that you can spend to better your opportunities and life. When your business is making money you can also give to others that have less than yourself if you choose to.
Developing systems and habits are important to scale your business, they save time by knowing what to do without having to rethink the whole process from scratch every time.
▪ Habit 1: Set up a separate dedicated bank account for your business or even better have at least two business bank accounts; one to bank your income and pay operating expenses from and another to put some money aside for taxes or reinvestment into the business. Do not mix personal and business transactions, doing so will involve extra work when it comes to tax time when you have to separate the two and if you have an accountant they are likely to charge you more for messy accounts. During the year, it is difficult to track and understand your business results if your personal finances are mixed with your business transactions. Unfortunately, a Mulberry handbag is not usually a valid business expense - I have seen this type of expense in several business accounts!
▪ Habit 2: Establish a bookkeeping process to track and manage your finance with style and ease. Online accounting software such as Xero lets you know your financial position at any given time (as long as you keep it updated). Your income and expenditure headings (your chart of accounts) should be customisable so that they make sense to your business and are not the generic ones already set up in your accounts software. The monthly profit and loss and balance sheet that you or your accountant extracts should then be easier to understand and enable you to make better financial decisions.
▪ Habit 3: Reconcile all business bank accounts at least monthly or ensure that your bookkeeper is doing this. This process highlights any mistakes in the bookkeeping process, possible theft or bank errors. I have seen an incidence where a business paid a complete stranger’s pension contribution for over a year without realising it, this adversely affected this company's cash position by over £2,000. Upon notification the bank did refund the money but this type of error would have been detected in the first month if the bank accounts had been reconciled during the year.
If you need any help installing these habits or you want to know more about them please contact us at email@example.com.