If you really want to excel in your business, you have to put up a business record keeping system that wipes out any form of garbage. Your system should provide you with the necessary information to
The system will offer you useful information that would let you see how well you are performing so that you can take the appropriate action when necessary. We have five steps that would help you to create a working financial record-keeping system. They’ll help you capture, check, record, review, and act when necessary.
Capture the Information
Make capturing everything a habit. Take it that if it isn’t there, then it just doesn’t exist. Ensure that as you kick-off your business, you stick to this, and after some time, it will become automatic.
“Capture” is quite tedious and demanding, but it is the most crucial of the processes. Keep track of all your expenses and the amount you take in as sales. Keep business and personal expenses out of that account.
You do not have to get anxious about what to do with the information yet, simply make gathering data a habit. Gather the item description, date, and amount.
Be Sure To Confirm Accurate Information
Take out some time weekly to peruse everything you have captured and see that all the required information is accurate and ready for recording.
Check that you have provided sufficient details on the expenses so that you can take an accurate record of them. For instance, a note for “paper, $3.55, 7/12” might not be enough.
Other information should be what essentially the paper was for. Did you purchase a ream of paper for your PC or did you get a newspaper for the office?
Create a perfect timing for you to check everything at the end of alternate weeks. For instance, the checking could occur on Fridays. Do not allow it to stay too long before checking, otherwise, there would be tendencies to miss out on vital information as you may find it difficult to remember.
Record the Information to Store It
When you record, it means that your financial information is put into a usable form. Do your record or transfer all you’ve checked to your bookkeeper to record. You can do this periodically to keep your business record up-to-date – preferably every month.
Transfer necessary information into accounting software or spreadsheet. You will likely uncover the most suitable online software to consider. You and your bookkeeper can find the necessary information and discuss it. Ensure, however, that everything is recorded each month for your review.
Consolidate and Review the Information
After completing the recording of your financial information for each month, print out four reports: an income statement (p&I), a balance sheet, accounts payable report, and an account receivable aging report.
Add a comparison using the same report information from the previous month, with each report. Pay close attention to necessary information within these reports.
The topmost vital financial statements are your cash flow analysis and profit and loss statement.
Act Based on The Knowledge You Have
While acting could involve effecting a change in the system, it could also mean doing nothing if everything appears to be perfect.
Input trigger points where the information necessitates acting. If you see liabilities increasing each month, for three months on your balance sheet, it probably signals that the expenses or assets are also increasing. Cut down on your expenses.
Peradventure you notice a particular expense is increasing as a percentage of sales on your income statement, ask questions why that would happen. You might want to reduce expenses on something to help maintain the level of your profit if you need to make that increase.
Be aggressive in your approach with going after slow payers that surface on your accounts receivable aging report. The longer a debt is permitted unpaid, the less likely it will ever be paid. So, put in place a collection system for unrecovered money. Do allow slow payers to begin to think that you do not really need your money, since you haven’t requested it in a while.
As for your accounts payable (your bills), attend to the payments as quickly as you can. You might even be open to receiving discounts when you pay on time. And if you think you cannot pay all at once, pay the ones that are capable of causing accumulated fees in the likes of penalties or that are capable of causing damage to your credit rating if you do not pay quickly.
Even when you may not be directly responsible for settling the bills, you should be ultimately concerned with ensuring that the debts are paid.
Your Business Credit Rating
Acquire a business credit rating if you want to distinguish your personal financial life from your business. Dun & Bradstreet (D&B), Equifax, and Experian are the primary business credit bureaus.
Keeping Records for Tax Purposes
Ensuring a working business record is also essential for tax purposes. A well-organized record will make it easy for you to have a smooth tax time. It would also help you to prove your expenses if you are audited by your state, the IRS, or other taxing authorities. The IRS has specific requirements in line with how you should keep your business records for the purpose of tax payment.
With little know-how of a business financial system, you should be able to set this one in motion and keep it running without so much effort. One of the hardest parts is gathering the information. Once that part is settled, you’ll find the rest easy to attend to.
Capture your business’ financial information, follow-up week to week, record and review necessary information every month, and then take required actions to keep your finances retained in good shape.
This approach will also help you to maximize your financial situation and minimize garbage. By adhering to the simple five-step system and having a good business record system, your business should be kept viable for many years.