Early survival of a new business and it’s profitability are strongly dependent on a good financial management system. Developing a system is one of the best investment of your time. It will help you monitor your business, keep good records and help keep you out of hot water with the IRS. Let us know the steps to increase you business profitability.
But… If you are like me, this is probably your least favorite job unless you are an accountant or bookkeeper.
Here are 10 steps to help you painlessly establish a financial system to keep track of all your records, receipts, invoices, bills, statements, etc. Once your system is in place, the time required to maintain this information will be greatly reduced.
1. Keep your personal and business accounts separate. You may even want to get a separate credit card for your business too. Keeping them separate will make record keeping a lot easier to do.
2. Bookkeeping system – There are two types of bookkeeping systems.
*Single-entry bookkeeping: Single-entry is the simplest form of bookkeeping. It generally includes a daily summary of cash receipts and a monthly record of receipts and disbursements. A checkbook, for example is a single-entry bookkeeping system.
*Double-entry bookkeeping: This is more complicated than single-entry bookkeeping but possibly a better choice, thanks to some of its built-in controls for accuracy. Under this system, transactions are entered in journals and then posted in ledger accounts. For example, each debit entry is offset by a corresponding credit entry, so the account is always in balance. The ledger shows income expenses, assets, liabilities and net worth.
Talk to your accountant to decide which one is the right for your business.
3. Use a software program for your financial record keeping. Personally I use Quickbook Pro for business and Quickens for personal use. Peachtree is another popular business accounting program. Today’s software programs make it easier for your to set up an effective and easy to maintain system. Your accountant can also set up your software.
4. Does your bank offer online banking? If so, you maybe able to download your banking transactions into your software program. This is a big time saver. Set up a regular schedule to do this. You can make it once a day, week or month depending on the amount of transactions you conduct.
5. Consistency is the key and Ideas to success. Get a notebook and write down how you do each record keeping task. Note how long it takes you do each task. Allowing enough time in your schedule to complete those task. Many times we under estimate how long it takes to do something. Make a list of your all your record bookkeeping tasks, Xerox it and use it as a check list to complete each job. Also if you get sick or hire somebody, they have the instructions written down on how to record and handle your records.
6. Create monthly folders or binders to hold receipts, canceled checks, credit card statements and other expenses. You can create folders for your vendors and or creditors. I personally use hanging binders for business records. There are twelve binders with 5 tab divider. The first divider is labeled petty cash and expenses. You can buy preprinted expense envelopes to fit behind that tab. The rest are Bank Records, Sales Taxes, Income Statements and Time Logs. Customer Invoices are in a separate binder. Vendors are in folders.
7. Open business mail immediately and date-stamp it. You can use an accordion file for bills and file them behind appropriate categories and due dates.
8. One day a week, set aside time to do your banking and bill paying. Grab the accordion file and pay the bills that are due. It’s a good idea to always use the same day and time each week. Make it an appointment on your calendar. Once it’s paid, stamp it paid and file it away.
9. Once a month you’ll need to balance your checkbook, send out invoices, do your income statements and close your books for the month. This is also a good time to check your office supplies and order them.
10.“Purge and Unclutter Day” Set aside one day out of the month to declutter and clean-up messes. Commit up to at least three hours of uninterrupted time to go through your office. Clean out files, update address list, clip article from magazines, clean out your email. Put the email you want on disc, clean office equipment and furniture, transfer and delete files from your computer.
Don’t be afraid to experiment. If something doesn’t work, quit doing it. You’ll eventually find a system that works and is comfortable for you.