The biggest area that small business owners struggle with is understanding the financial side of their business. Many small business owners handle their business’s bookkeeping themselves, rather than hiring a bookkeeper to assist them. Being able to manage your business’s finances is crucial, however, many don’t have the right knowledge about bookkeeping, finance or the software available.
This week our Managing Director, Brooke Arnott, hosted the “Know Your Numbers” workshop. We ran through the basics of bookkeeping and finances to help business owners become more financially literate. Today, we want to share with you the need-to-know information that will help you gain more control over your business.
Bookkeeping Basics You Need To Know
Understand these key terms
First, you need to establish what you know and what you don’t know. These terms are key to understanding your business’s financial information:
Reconcile: This basically means to match up your account balances to ensure that they are equal at the end of the period. Reconciling is important to make sure you are not losing money, and to identify unusual purchases or accounting errors.
Asset: The items your company owns that provide future economic benefit – basically, items owned by your business. Examples of assets include cash, accounts receivable, inventory, equipment.
Turnover: This is not the same as profit. Your turnover is the net sales of your business over a certain period and your profit is the money you have left after you subtract the expenses from your net sales.
Double entry: A bookkeeping system that consists of two accounts: debit and credit. Every transaction is entered into a debit account and a credit account.
Chart of Accounts: A list of your accounts. This acts as a financial story of your business that will help you understand it better.
Bad debt: A debt that cannot be recovered due to the debtor going bankrupt.
Cash flow report: A report showing the money coming in and the money coming out of your business.
Use Accounting Software
If you are not currently utilising bookkeeping software to help manage your business’s finances and find it difficult to manage your bookkeeping, then Xero or MYOB can help you. Most of the business owners that attended our workshop this week said that they use either Xero or MYOB.
Xero is great because of its customisable dashboard which you can set up to suit your business. You can move around different accounts and place them wherever suits you and can set up a watchlist for specific accounts.
MYOB is perfect for smaller businesses and for sole traders.
Setting Up Your Chart of Accounts
Your chart of accounts is the basis of your accounting because it will give you the most information about your business’s finances. It gives you a rundown of your:
Assets – items that your business owns
Liabilities – debts that your business owes (e.g. PAYG, superannuation, credit cards)
Cost of Sales – anything you buy to on-sell to customers (we recommend that you break this down into further detail)
Expenses – the overheads of running your business
Equity – the money that the owner puts into the business or takes out of the business
Take advantage of bank feeds
Bank feeds let you automatically import your account’s transactions into accounting software including Xero and MYOB. MYOB currently has the best bank feeds, which are 100% correct guaranteed. Xero comes close, being 98% correct. Always check your transactions and reconcile, just in case.
Understand your management reports
The key components of management reports include:
- Executive Summary
- Cash Flow Summary
- Profit and Loss – this will show you if your business is profitable
- Balance Sheet – A summary of your assets, liabilities, and equity
- Aged Receivables
- Aged Payables
We recommend that you look at these regularly, at least once a month.
Utilising add-on solutions to maximise your accounting software
We are really big on automation and utilising software that is available to be automated. – Brooke Arnott
We recommend that all business owners look at the add-on space available for their business. Some add-ons we recommend to make your financial process a little smoother include:
- Debtor Daddy / Chaser – to manage people who don’t pay bills
- Stripe / Service Mate – direct payment systems (allow clients and customers to pay directly through an email or invoice)
5 questions to ask your accountant
- What is my business structure?
- Should I be registering for GST
- Can you recommend some tax planning?
- What’s my break-even point?
- Fixed asset planning or what your asset write-offs will be?
Don’t keep going backwards, because that’s how it’s always been done. Just be up to date and forward plan – Brooke Arnott.
Here at The Small Business Lounge, we are all about forward-thinking with our bookkeeping. We do our absolute best to guide small business owners in the right direction and educate them so that they can be confident and take full control of their business. Did you know that we offer an ongoing support program for small business owners?
The Lounge Membership
- 4 advisory sessions
- 2 social media consultations
- 1 ticket to one of our workshops
- Tickets to our Networking Breakfast events
- Christmas party ticket
- HR checklist review and consultation with specialist
- If you’re a Bankwest customer, you can pay a discounted price of $25 a week or can pay upfront at a discounted price