The beginning of a new year always presents the opportunity to make a fresh start. If 2014 is the year in which you plan to finally organise your business finances, below are some simple tips to get you started.
Separate business from personal accounts
Open a separate bank account for the business and keep business earnings separate from your own. 2014 is the year in which you stop using office petty cash to cover your personal financial requirements.
You may borrow money from the business (typically called a Director’s loan) but if you do, keep a documented record of the loan and your commitment to pay it back.
Create an annual budget
You must have an idea of your planned business expenses in 2014 as well as the planned sources of funds. If budgeting for the entire year feels a little overwhelming, begin with just one month. What are your planned business expenses in January? List each planned expense, for example “January rent: shillings 200,000.”
If you can do this for all January’s expenses, by simply multiplying those figures by 12 you will have a rough idea of your planned 2014 expenses. Remember to adjust the estimates for each month by including any additional expenses that might be unique to a specific month.
For example, if you plan to print marketing materials in April, add that estimated expense to your April projections.
Further to the above, you should document the sources of funds (and amounts) to pay the expenses you identified and keep the business running. Will you earn revenue by selling goods/services? If yes, what are your projections – when and how much? Will you borrow funds from family and friends or the bank; how much will you borrow and how/when will the business repay the loan?
Alternatively, will an investor provide funds in exchange for shares in your company; and if yes, how much?
Notably, your projected expenses should not exceed the funds you realistically expect the business to bring in.
Additionally, create 2014 monthly cash flow projections (covered in a previous article) to show exactly when the business might be short on cash and thus give you sufficient time to proactively identify alternative cash sources, as needed.
View taxes as a cost of doing business, not as a surprise. When you create 2014 job cost estimates, in addition to including an allocation for your profit margin, include an allocation to cover the taxes that the job you are costing will surely incur.
Record every single shilling that comes into or leaves the business for any purpose whatsoever and compare your records to your projections at least every month.
In 2014, if you do all the above as well as have someone who knows about accounting review your records regularly, you will be well on your way to better business financial management than in 2013.