Easy financial health checks for every soloist, everyday!
Service delivery? Check. Marketing? Check. Personal health? Check. What about financial health checks? Boring, but vital. Better check …
Would you rather eat iceberg lettuce or do your bookkeeping?
OK, don’t answer that.
For most people, neither is tasty. But regular bookkeeping is essential to keep a close eye on your business’s financial health. Following these five tips means you’re more likely to understand enough about your day-to-day activities to make informed decisions, which will help you pre-empt issues, react promptly and manage a healthy business.
1. Cash flow – Are you in the black?
Business owners should check their business bank account balances daily to ensure there is money available when invoices and/or wages are due. Plan ahead for when you need to pay upfront for materials or stock but have to wait before the customer pays for the sale.
"Without up-to-date and accurate bookkeeping you may not know what’s up in your business until it’s too late."
2. Profit – Is your business making any money?
Invest in accounting software so that you can run a Profit and Loss report and can quickly see how much profit the business is making at any given time. If your information is just in a spreadsheet, design it to deduct expenses from income and calculate the net difference.
3. Sales – Have you sold anything?
By continually monitoring sales you can become more familiar with the sales patterns of your business (e.g. seasonal variation). If sales are lower than your target sales figure (do you have a sales target figure?) this is a trigger to investigate why and then assess the best course of action.
4. Debtors – Has everyone paid you?
Not being paid for your work is no fun. Even worse, the longer a sale remains unpaid the less likely you are to get paid. Timely, polite payment reminders maximise your chances of getting paid faster, which affects cash flow. Three types debts to catch early:
- Larger amounts
- Unreliable payers based on history
- Unpaid for the longest period.
5. Tax – How much of your business’s money isn’t yours?
Although a healthy bank balance is good, sometimes it can be misleading, because usually there’s tax to pay. To keep one eye on your actual and estimated tax obligations, remember that a portion of every profitable sale will usually incur income tax. Other examples of tax obligations are GST on sales (if GST registered) and PAYG Tax Withheld from employee pay. Pre-empt this by siphoning the expected amount into a separate bank account.
Although bookkeeping is actually less exciting than eating iceberg lettuce, without up-to-date and accurate bookkeeping you many not know what’s up in your business until it’s too late.
* This article was written in conjunction with Ann Bolch from A Story to Tell