Ensure your finance system is in order from the start
This week, I was speaking with a recent start up business. To save money, they were trying to do their own bookkeeping.
Based on their knowledge of the financial processes, from past employed roles, they had set up a fairly good finance system for the business. However, they were not maximising software to make their tasks easier and more efficient.
As mentioned, the reason to do it themselves was to save money, but 3 months in, they have already lost money! How? By just processing paperwork and not understanding the tax rules, they lost the opportunity to claim back VAT and tax deductable expenses from some of their older upfront costs. Additionally, they had lost receipts for items paid for personally, on behalf of the business, restricting their ability to claim back the spend.
In my view, more critically, their accountant had recommended to them a bookkeeping package, without providing any training, and that they could not operate it. It had not been set up correctly, balance sheet costs were in the profit account and as a result, they had no chance of receiving any useful information or reports from the software.
Bookkeeping is one task you can easily outsource or employ someone to do for you. Rarely do I meet an entrepreneur who loves completing their financial record keeping. If you consider outsourcing this task, also be mindful that a qualified bookkeeper will complete the work quicker than you currently do and should also bring ideas to help you develop even more efficiency into the processes you have.
An effective finance system from the start will show its benefits very early on.
Not only will your records be accurate, many good accountants fees will recognise the quality of your day to day systems with the level of their proposed fee. The software packages today provide you with ‘live’ data, so you can keep you finger on the pulse. However, most importantly is the ability to use your financial information to make key decisions during the critical early months. Can you spend x? What is your cash position? Is the business performing to the margins planned for? Are your overheads as expected? Are you on forecast and if not why not? Are you collecting your invoiced debts quick enough? Are you solvent?
In my view, making the numbers work in your business from the outset is critical, but also make sure you are measuring and analysing the right numbers. Those numbers that drive the success of your business and not those such as turnover and profit, which are simply an outcome of other activity in your business.