So you've done it. You started up that business you always dreamed of having and things seem to be off to a good start. You've designed the product, identified your target market and set up a website. However, there's one less glamorous task you can't ignore. Keeping your books in order is one of the key steps to maintaining a healthy cash flow -- ensuring that you have enough money to pay the bills while still earning a profit. Being disorganized can cost the company money, and also might also have legal ramifications if you fail to file taxes properly.
Here are a few things to keep in mind when thinking about how to manage your company's finances:
Keep a Ledger
A ledger is a record of the inflow and outflow of money in the business. Use a ledger to record all of the transactions that your business makes. Document every sale you make, all the expenses you accrue and any bank fees or other costs. You can keep a ledger the old-fashioned way using pen and paper, or you can opt for a more sophisticated system like QuickBooks, Excel or FinancialForce.
File the Invoices
Invoices and receipts are the backbone of a small business. If you are selling a tangible product, such as something that one might find in a shop or boutique, keep a copy of each receipt that your customers get for making a purchase. Likewise, if you are selling a more costly product for custom orders or if you are providing a service, generate and retain copies of invoices, and subsequently mark when the invoices have been paid. If you decide to use a computer-based system to keep a record of the company's transactions, take advantage of that system's ability to create and store electronic receipts and invoices. Otherwise, invest in a scanner so you can manually scan and save paper invoices and receipts on your computer.
It is equally important to keep records of the expenses your business accrues. By doing this, you can benchmark your expenses against your income to determine whether or not you're spending money at an unsustainable level. For instance, you might realize that the amount you are spending for high-speed Internet access could be reduced by switching to a competitor, or determine that another supplier offers a lower transaction fee for online payments.
Reconcile Bank Statements
Joseph Benoit at Entrepreneur magazine recommends business managers regularly review their finances to determine if they are incurring losses, breaking even or making a profit. One of the best ways to go about this is by comparing the ledger to your monthly bank statements. Not only does this give you a chance to look over each transaction in detail, it also will help you identify any discrepancies. Make it a habit to check your bank statements every month to make sure they align with your internal ledger.
The final thing that small businesses must be aware of when managing their books is the responsibility to pay tax. Not only must you pay tax on revenue, but you also might be liable to pay tax on any services or products you buy from others. Keep all of your paperwork in line so you are prepared to pay the IRS come tax time.
Jeremy Bradley works in the fields of educational consultancy and business administration. He holds a Master of Business Administration degree.