Keeping your receipts in a shoe box and handing it over to the accountant once a year is financial madness. Don’t be surprised if you are out of business after your first year with that attitude to financial management.
Regardless of what business you are in, you need to keep a close watch on money coming in and going out; and know what your bank balance is on any day. The least you should do is to buy a small business accounting package. This will enable you to keep track of revenue coming in and expenses paid out on a monthly basis.
There are plenty of available accounting software packages out there that will do the job. Just make sure that the one you select is set up for an Australian business. Our GST, BAS and tax system is like no other.
So once you have your accounting software installed and working, you can now monitor the performance of your business on a monthly basis. If you input your revenues and expenses daily then you can monitor your business on a ‘month-to-date’ basis. This is only the first step on your financial management journey.
You need a benchmark to compare against each month. It is great knowing how your business is going but to be able to see a comparison against ‘forecast performance’ would be even better. The better quality packages allow you to set up a budget and to design ‘budget v actuals’ reports.
Now you need to prepare a budget. A budget is really the financial translation of all your plans and strategies. Your expense budget should be reasonably straight forward because most expenses are known in advance.
The trap to be careful of is that expenses are not the same each month. Some bills have to be paid weekly, others monthly and some annually. Take into account the ups and downs of your forecast expenses. That’s what helps create a realistic cash flow forecast.
I will continue in the next post of business coaching Brisbane with the tough job of forecasting revenue.
Until next time!
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