Cashflow is key to a small business’ success, and it’s vital to find the right way to manage your business to ensure it. Most businesses fail because they don’t have enough cash to keep their operations and dreams alive. It is critical to have a business plan and, within that, some cashflow calculations.
It doesn’t have to be complicated, just enough so you know what’s happening. If you have a good plan and manage your cashflow well, it helps you through those difficult times when cash is tight.
I recently joined Amanda Newton, Head of Community from cloud-based accounting software platform, Xero, for a discussion on the tips and tricks of bookkeeping and tax on a podcast by CollabZone Radio – an online community for small business owners to better connect with each other – and from that discussion we came up with some top tips on how to get the numbers right in your small business.
Understand the balance sheet and the profit and loss statement
It’s vital that anyone operating as a sole trader or running a small business understands the numbers that are the foundation of the business – and if they don’t, invest in advice from a good accountant. It’s important to understand the balance sheet and the profit and loss statement. If you get the figures right it allows you to deliver on the strategy of your business.
Accounting software / bookkeeper
I am a firm believer in having tax returns prepared by an accountant, but says any small-business owner should be able to do their own books, either manually or using a software package like Xero.
Some people may choose to invest in professional services from the start, but I suggest that a good line in the sand is when the business is turning over around $200,000 a year.
Ask the accountant you want to work with if they can help you strategically, can they give you good advice on how to structure your business, and how to manage your cashflow and reporting obligations.
One obvious part of doing the books is the issue of wages. We chose not to pay ourselves for several years, preferring to invest in the business, but we were well prepared for that, and it is important to plan appropriately. You need to ask yourself, “Can I live leanly for a couple of years while I get my business off the ground?”
Not understanding cashflow management is one of the biggest mistakes small-business owners make.
Managing your accounts always comes down to managing your cash. Get comfortable using a spreadsheet. You don’t need to be an expert; you just need to be able to put your months down, your expected sales numbers, your expected costs.
In terms of tax – how much you should be paying, and what you can claim –talk to your accountant and/or check with the ATO website, and other government business websites (i.e in Victoria, www.business.vic.gov.au). Always rely on reputable sites.
Remember…you should not resent paying tax, because if you are earning enough to pay it, it means you are successful!?