- Set up separate business bank accounts. Keep business & personal records separate.
- Reconcile your bank account monthly.
- Keep money aside in a separate interest-bearing bank account for taxes.
- Track your monthly income and expenses and maintain a cash flow spreadsheet.
- Compile a financial statement (budget) at least monthly.
- Ensure you send out customer invoices promptly – preferably weekly, but no later than monthly.
- Follow up outstanding debtors regularly (eg. phone, send emails and statement of accounts).
- Determine what accounting software program works best for your business.
- Establish a relationship with your banker.
- Consult with an accountant regularly before you start, and afterwards.
Setting up good accounting practices can help relieve this burden and allow you to concentrate on the success and growth of your company.
Set up separate business bank accounts. Keep business & personal records separate.
There is no legal requirement for sole traders to have separate bank accounts, but we highly recommend it for easier tracking of business transactions. Having a business only bank account ensures that all business transactions can be accounted for even if you misplace a receipt.
A separate bank account allows you to see exactly how much cash you have available and may prevent overspending. Using EFTPOS for expenses, not cash, will provide electronic proof of the transaction and save you having to rely on keeping receipts.
Partnerships, companies or trusts, must legally have a separate bank account.
Reconcile your bank account monthly.
At the end of every month (or more frequently, especially if your business has a large number of transactions), reconcile the business accounts in your accounting software.
This practice helps you to keep your accounts up to date, which can quickly get out of control as your business grows, you get busier and the financial year moves on. It also identifies data entry mistakes and missing transactions. With accurate financial statements and tax reporting you can keep an eye on how your business is travelling.
Work with your accountant or bookkeeper to devise a system that works for your business – reconciling doesn’t have to be arduous.
Use technology to your advantage – there are accounting software features like daily bank feeds which make reconciling easier and faster. There are also many apps that capture expenses and receipts, so you are not scrambling to find them.
Keep money aside in a separate interest-bearing bank account for taxes.
Putting money aside into a separate bank account, usually 20-35% of revenue, helps to manage your cash flow, and ensures your business has the funds available for PAYG, GST and company tax instalments if and when applicable.
A separate bank account ‘hides’ the money from the everyday financial goings on and is harder to gain access to it. Funds are available when the tax payment is due and avoids hefty ATO fines for non-payment.
As a bonus, you can earn some extra income from the savings.
Track your monthly income and expenses and maintain a cash flow spreadsheet.
Tracking your income and expenses through your profit and loss, may highlight areas of your business that are going well, and others that need improving. Is the spending on mobile or internet charges going up? When you have the numbers, you can go to your mobile and internet provider and negotiate a better deal. You can do the same for your major business suppliers – information is power.
A cash flow spreadsheet goes one-step further, giving you a snapshot of business income and expenses, and indicating the payment cycles and seasonal trends. By watching the timing of money coming into and going out of the business, shows the times when the business may require more or less cash.
For example, your business insurances may all be due at the same time of the year, usually on the anniversary of when you set up your business. If this big hit comes at a time when income is slow, this can be a huge drain on the business and cash flow. A little planning will ensure the business has enough money set aside for these bills. The same for revenue, your business income may be skewed seasonally.
A cashflow spreadsheet can be a valuable tool to help plan ahead and ensure you have enough cash every month. Read more about creating a cash flow statement, and download a free Excel template, here.
Compile a financial statement (budget) at least monthly.
A business budget works the same as a household budget, it allows you to plan and manage your business’ financial performance. When the budget is compared to actual expenses and income, it highlights the leakages and the areas where you have saved money.
A budget allows your business to –
- React quickly when the budget is not met to eliminate issues down the track – the budget blowout may be a temporary spike or could be part of a much bigger problem.
- Plan and make bigger decisions such as the purchase of assets, employing more staff and investments.
- See trends and movements in your industry, so your business can seize on these opportunities.
Ensure you send out customer invoices promptly – preferably weekly, but no later than monthly.
The quicker you send out invoices, the quicker you will receive payment. Set up a smooth and easy invoicing process so it is accurate and occurs on a regular basis. This will also help in managing cash flow and reduces a lot of the stress in managing a business.
Include all the details your customer requires on the invoice, particularly their purchase order number if they have quoted one when purchasing and the invoice is being emailed or sent to the correct person or place.
Ensure all your electronic payment details are on every invoice and offer different payment options to make it easy for customers to pay. Alternative payment options your business can offer, include credit card, BPay, PayPal, and pay later options such as AfterPay or ZipPay, if these options would suit your customers. Before offering other options, be sure to check out all the fees incurred with the payments, as these can quickly erode your profit margins.
Does your bank offer the New Payment Platform (NPP) such as Osko by BPay or Beem It? This payment platform gives businesses real-time funds availability, 24/7 access to funds as well as providing easier to remember PayID to replace BSB and account numbers. Read more about the NPP here.
Follow up outstanding debtors regularly (eg. phone, send emails and statement of accounts).
The longer an invoice is outstanding the harder it is to chase for payment. Be consistent and set a standard so your customers know they will be chased for outstanding invoices.
Debt collection and legal action is an expensive avenue to follow.
There are some great Xero addons to automate and help chase debtors. Check out our blog on how Xero add ons can help solve some sticky business issues [link to 9 problem solving Xero add ons]
Determine what accounting software program works best for your business.
Choose your accounting software carefully, ensuring the software is easy to use but also meets your business needs today and that can grow with your business. Do some research online, and ask other businesses or colleagues which accounting software they use and what the software limitations or savings are.
Your accountant has experience in using all types of accounting software and can help you to choose the right one that covers all aspects of your business. There may be software or add ons that are specific for the nuances of your industry.
We’ve written a blog on Xero Vs Quickbooks to get you started with comparing accounting software.
Establish a relationship with your banker.
With so many banking products and services on offer as well as confusing and complex product disclosure statements, how do you know which is the best one for your business?
Get to know your specialist business banker. Most major banks have dedicated bankers, who can work with you to find banking and financial solutions and offers that are suitable for your type of business.
Your business banker can advise and help you by providing better interest rates and loan terms, overdrafts, lower bank fees, incorporate the New Payments Platform, improve your customer service, and long-term financial vision and planning.
Consult with an accountant regularly before you start, and afterwards.
An accountant is a great business partner to work with. As a start-up, they can help you advise the best setup for your business, ensuring your legal and regulatory obligations are met, as well as considering your business needs now and in the future.
Once your business is set up, they will work with you on tax compliance, accounting software, business strategy, inventory control, business expansion, purchase of assets and company regulations – working towards, and helping you and your business succeed!