When we ask small business owners what tasks they find the most tricky, keeping track of business finances is right up there in the top five.
That’s why we’ve created this short practical checklist of 7 items you can do once a month to continue to build your skills. Following hot on the heels of our previous blog around key daily habits to get you ‘closer to the numbers’, both blogs will ultimately help you be more in control of your finances.
If you read this blog and think “I don’t have that report” or “I can’t easily find that information” then that’s what you need to tackle first – finding out how to get quick access to these things. If your records are in a cloud accounting app like Xero or QuickBooks, you should have instant access to the things you need to do this. BUT (and it’s a big but), you do need to update your figures regularly. You can’t keep track of what isn’t there yet!
Awareness is your #1 goal here. Spending roughly an hour once a month should be enough for your initial checklist, but you could do soooo much more. As a result, you might find you want to give it more time as it becomes more of a habit than a task.
Right, here’s that checklist.
1 Check your sales figures
Revenue, turnover, income, sales, ‘the top line’ – it’s all the same. They are all a way of checking how well your business has done!
You should be able to check this easily, regardless of how you keep your records. You are looking for comparisons, so you need at least two sets of numbers to put side by side and spot the differences. For example:
- How much did you turnover last month?
- How did it compare to the month before?
- How did it compare to the previous year (if you have one)
- How does it compare to any goals / targets you set yourself?
Think about what action/s you will need to undertake if your sales figure hasn’t met your goals. You might want to push yourself – or at least make ends meet!
2 Check your cash balances (your financial ‘inventory’)
Cash is the lifeblood of business; it needs to flow. So, check in and see what your cash position is.
- What do you have?
- Are you concerned? Do you need a plan to resolve issues?
- Can you pay yourself and the team?
- Is there about to be a problem if I don’t take action today?
Checking your bank balances will undoubtably bring things to the forefront of your mind. Write down your actions for next month and put time in your diary to take those actions.
3 Check who owes you money
We spoke in detail on this point in the daily habits blog. At this point, you are asking yourself the following:
- When did I last chase anything that’s overdue, or reminder those who have invoices coming due shortly?
- How can I get paid quicker?
Set a diary date in your calendar ASAP, to get on with your ‘credit control’. The sooner you do, the sooner the money will come in.
4 Check who you owe money to
Are you a regular and timely payer yourself? Check your pile of paper invoices, or your software’s ‘accounts payable’ report to see who you owe money to. If you can’t see that info straight away, ask yourself:
- If I can’t check this information easily in my records, do I need a better system?
- Do I have any bills to pay NOW (particularly if they are late…)?
- What about bills due next month? Will I have the cash?
Think about what action/s you might need to take in the coming month to deal with these bills.
5 Look at your profit and loss report
We looked at how to read a profit and loss report in our blog on the subject. If you don’t know how to find it, or read it, simply ask yourself:
- Can I get access to the report easily?
- Am I aware of where I spent money (hint: go through the expense categories)
- Does the book-keeping look right, or are there areas that just don’t seem right?
- Have you made enough money on paper to fund your drawings from the business? i.e. does your ‘net profit’ look at minimum higher than the amounts you are drawing!
Review the above. If you aren’t happy with the answers, look for professional help to improve the situation.
6 Think about tax
It’s time to firmly grasp the tax nettle. Tax is one of the key elements small business owners miss when reviewing their finances. The key reason for this is they don’t know what they are due to pay when, or even when it’s calculated.
Whilst some accounting apps are taking a shot at this, they can give odd results. So, it’s still better to work out your tax liability manually. Ask yourself:
- When is my next big bill?
- Do I know how much it is?
- Do I know how much my personal and/or corporation tax might be?
- Do I know the relevant due dates?
If you don’t know the above, at least try to keep a provision put aside for tax and understand your due dates. If you want more specific answers, seek professional help.
7 Review your Balance Sheet Report
When it comes to reading balance sheets, practice makes perfect. When you get good at it, reviewing your balance sheet reports is one of the best checks you can do.
You can bring yourself up to speed on how to read a Balance Sheet in our blog on the subject here. Then, practice!
From your read and review, you may need to plan to investigate some balance sheet items, or take action to improve certain areas. Build them into your plan for the month.
Why we love checklists
Doing these checks regularly can really help give you an overall awareness of how your business is financially, and keep you informed.
But you can take this MUCH further when you get the basics down to a fine art. As you do, you might want to expand the time you spend doing this. It’s time well spent, enabling you to take better business decisions, take action and (potentially) sleep better at night without worry!
Less business, more life
When you’ve got access to and understanding of your business figures, it can help improve profits. In turn, profits ultimately make sure your business is giving you the life you want. So, you can relax more and ENJOY your business and your life.
If you’d like a little help with any aspect of your business finances, do contact us.
We won an award for doing just this last year, fuelled no doubt by excellent reviews and feedback from clients of our ‘advisory’ services.