Even the most brilliant idea will not make a business successful unless the important elements of running a successful organization are taken care of. One of the key areas that need to be managed effectively and efficiently is the business’s finances, with every financial transaction being recorded accurately and in detail.
Even a freelancer or sole trader will need to ensure that they maintain accurate records of any payments related to their business operations. From buying new ink and paper for printing invoices to buying equipment or running a company vehicle, it is important to ensure that all the money in a business is accounted for.
Failing to keep accurate records will have a negative impact on the business as it is impossible to calculate how profitable the organization is. From buying new stock to expanding the company’s remit, an accurate overview of the financial picture of the business is a vital part of any business plan.
This is particularly true for larger businesses that may need to be accountable to investors or a board of directors when it comes to plans to expand, change the way they operate or simply hire more staff. Some of the key aspects of managing a business’s finances include:
Record Keeping
From a simple spreadsheet to a multi-level database, being able to see the details of every transaction that goes through a business is important. From customer refunds to staff payroll, it’s vital that every payment is logged with enough detail to ensure that it can all be accounted for.
This is important for a business to ensure that those in decision-making roles have all the information they need about how the company is performing. It is also vital for taxation purposes when an organization will need to know about the tax rates applicable to the various parts of their business and be able to present documentation to demonstrate this if need be.
Larger businesses may have multiple accounts, with one used for payments coming in from customers or clients and another used for outgoing payments to suppliers and staff. A centralized reporting system is often used to track payments through these accounts and ensure that all funds are accounted for.
Budgeting
Having a budget that covers all the business’s income and expenses is one common-sense way of ensuring that the business is profitable. A business budget will typically include:
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Rental costs for any business premises.
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Utilities and related services on business premises including internet and phone lines.
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Purchase or hire costs for any equipment used.
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Costs of any products or stock purchased.
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Costs for any consumables used in the process of providing your product or services.
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Administrative costs such as postage, stationery.
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Staffing costs including salaries, taxes, training costs, background checks, recruitment costs, and any relevant certification or training required by your industry’s regulators.
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Debt servicing – if the business has borrowed money that is being repaid with interest, the cost of servicing this debt should be considered in any budget.
The specifics of what your budget should include will vary depending on your industry, but you can get some idea of what other, similar businesses cost to run by doing a little research. Ensuring that your products or services are priced competitively is one part of the process but finding cost-effective ways to run the business can also help manage your budget.
Dealing With Officials
Maintaining accurate records of your well-managed finances is the key to almost every successful business. Detailed records are usually required in order to apply for a loan from the bank, get tax relief from the government or qualify for charitable funding, so it’s important to have as much information as possible to hand whenever you need it.
Many businesses use fully integrated accounting systems with specially designed checks that can be processed automatically, and other safety features designed to ensure that every payment in or out is accounted for. Many businesses have systems in place to double-check each transaction to ensure that it has been entered and paid correctly.
Businesses also need to keep detailed historical records of payments from previous years in case there is ever a question about a past payment or tax liability. The length of time varies from item to item, but the usual recommendation is to keep financial records for seven years to avoid shredding or deleting something that is later needed for an audit.
Your finances are such an important part of running your business that it is important to ensure you have robust systems in place right from the start. From keeping receipts to choosing your accounting software, keeping on top of your accounts will help your business run smoothly.
