When you’re running a small business, one vital skill you need to master is how to manage the finances.
Most business owners manage to keep on top of things in the early days, when their workload is lighter. But as their business grows, it becomes harder, because they’re juggling so many balls.
So it’s important to implement good systems that will provide you with the financial information you need in a way that’s easy to consume.
Here are five controls that will help you stay on top of your business’s finances:
1. Control your cash received
Do a simple calculation each day to manage your cash: cash on hand should equal cash received minus cash paid out or banked. If it doesn’t, you should record any discrepancy as a cash loss or surplus so your accounting records are accurate.
If your cash losses start to increase, you’ll know right away, which will allow you to jump on the problem.
The same applies to customer receipts. If you’re not using accounting software, then manually add all your customer receipts and compare them to the total deposits from customers on your bank statements.
2. Control your supplier invoices and payments
You probably already match your supplier invoices to their statements and follow up on any missing credit notes.
But it is also important to match the remittance advice to the statement and to make sure the remittance amount matches the payment.
Fortunately, most accounting software can handle this step for you but remember to do a bank reconciliation to check everything was entered correctly.
3. Control your invoices issued
If you have a point-of-sale system, you probably already control your sales. But if you have a service business, it’s easy to miss out on billing.
That’s why appointment registers or timesheets are vital – even for the business owner. Otherwise, you won’t have an accurate record of how much time you spent working for a client.
The easiest way to control this is to use accounting software that includes these features.
You should also compare the time worked to the amount invoiced, even if you charge your clients a fixed monthly fee. Because if the amount of work has changed, your fee might no longer be accurate.
4. Control your stock
Regular stock controls will highlight if you’re buying too much stock or if any of your stock is missing.
More importantly, it will give you accurate cost-of-sales figures, which show whether your selling prices are suitable or need to be adjusted.
5. Do detailed costing reports
It’s tempting when updating your accounting software to just enter an entire supplier invoice to purchases and enter a customer invoice to sales.
But if you use the costing features of your accounting software and enter the individual items, you’ll be able to see how much profit you make per product or service.
You’ll also know if you’re making a loss on some products or if you forgot to invoice out a product.
Finally, don’t forget to set aside one day per month to go over these reports, because they won’t help you if you don’t look at them.