Essentials When Setting Up Your Business
Have you set up your own business? You had the fantastic idea you knew would work, you know how to make/create/develop your product or service. You have set up your business, gone to market, found clients, income starts coming in, times are looking good – until they are not. Then it’s time to scrutinise your finances – maybe you have an outsourced accountant who takes care of all that, or maybe you have a loose system based on rarely updated spreadsheets and mental maths? Do you know how much profit your business is making each month? Do you understand your expenses? No? Don’t worry, you are in good company!
So few of us focus on our finances in those busy but exciting early days. I have spoken to and worked with so many entrepreneurs who tell me accounting, bookkeeping, finances, whatever you want to call it, they know is important but constantly gets pushed to the bottom of the to do list in those early days – especially if business seems to be going well.
The common comments are –
Money was coming in so I didn’t think it was important
I was too busy to spend the time on it
Oh I don’t understand that stuff, I despise spreadsheets, my partner is the brains of this business.
I could go on. It is great when times are going well, for sure. But what happens when they are not – when the clients dry up, when clients no longer pay on time, when requests for discounts are standard with every enquiry? Do you know how much you actually make on your business? Do you know which products are profitable and which are not? Do you know what, if any discount you can afford to offer your clients – especially the loyal ones you’d really like to keep and also help out during these tough times?
Often I have business owners coming to with more exciting problems such as:
My business is going so well, I think I need to hire staff but I have no idea if I can afford it
I have a potential investor in my business. I’m so excited as this is what I need to push my business to the next level. But they want to see financials and I don’t have them all in one place/recorded in a legible manner/it’s all in my head!
I have some potential big contract opportunities coming up which will require deposits or bonds. I have no idea if I will have the cash to afford them.
So what do I recommend you know and do during your first year of business?
Understand the difference between bookkeeping and finance
Bookkeeping is keeping track of the financial records of a company, such as receipts, expenses, invoices and bank statements.
Business Finance is strategic – it’s forecasting cashflows, managing assets, budgeting, understanding and analyzing the business. It is focused on maximising profits and minimising risk. It’s helping to build a strong, robust and shock resistant business.
Know why is it important
Good bookkeeping is essential to understanding your business. It will help to grow your business too. How? If you have good bookkeeping habits, and understand the reports, you can quickly make strategic decisions, forecast your business’ finances and cashflow, plan for the future with confidence. All of which is essential if you want to maximise your profits and grow your business.
Maybe it’s not as complicated, confusing or even boring as you might think
Yes, finance can be complicated. Yes it can be confusing. If you embrace it from the beginning of your business, get involved when it is at it’s simplest, when you have the passion to learn, you are setting solid foundations and your knowledge and experience will grow with the complexity as your business grows.
At the start up stage, there are some simple steps you are take to ensure you are in control and on top of it from the get go:
Schedule time for your bookeeping and don’t skip it
If you have an important meeting or call to make you will book time in your diary for it. You should treat your bookkeeping the same. Think of it as important as that client meeting – it may lead to extra profit for your company. If you have someone else taking care of your bookkeeping – schedule in time to review it and go over the reports in detail.
Sign up to an online accounting system.
In those very early days a spreadsheet works perfectly, but as your business grows you will need an accounting system – it will save you time and hassle and will be easier to maintain than a spreadsheet. You will benefit from system generatesd reports and analysis. The right one can help manage your debtors, customer contact details, sales projections. It won’t just tell you a profit number, it will give you valuable insights into how your business is really doing. There are so many low cost, user-friendly desktop and mobile apps which allow you to manage your bookkeeping anywhere and easily.
Your business bank account
Using your business bank account, not your personal account for your business transactions will make your bookkeeping easier to track and manage from the start. Once you have your business bank account, check if it can connected to the accounting package you have chosen. This would save you time and effort.
Establish financial goals.
Rather than just say, “I want to build a multi-million dollar company,” you need to break financial goals down into reachable and measurable ones.
Monthly, weekly or even daily revenue goals allow you to stay on track and make the adjustments necessary for constant growth. You can even set milestones to hit along the way, giving you a lot of smaller goals to constantly hit. Knocking out little goals can give you the confidence needed to keep powering through the entrepreneurial journey.
The longer we ignore the financial side of our business, the harder (and more expensive!) it will be to catch up and create those accounts when you grow to the point you need them to be in order. Accounting is a great tool to support your business, giving you invaluable insights into how your business is doing, where you might make changes to grow your profits and help you understand best how to drive your business forward. Think about what it’s costing you not to do it!