Bookkeeping can seem daunting to new franchisees, but Oumesh Sauba’s simple strategy will give you peace of mind and more time to spend on the things you love
Being a small business owner requires a lot of different skills. As well as having the drive to be your own boss, you need to have a good overview of your market, understand where you fit into it and know what your customers want and expect from your brand. You also need to have a detailed but flexible strategy that can respond to the changing needs of your market and customers. Above all, you need to be able to manage your finances accurately, sensibly and in a way that aligns with your operational goals.
If you’re a new business owner, financial management can seem like a daunting task, particularly if you’ve never needed to keep accounts before. Following these simple steps will help you establish a sound financial process, ensuring your accounts are accurate and easy to manage, freeing up your time and energy to focus on what really matters – growing your new business!
Create a plan
The first step is to create a plan for managing your finances. This could include key dates, who is responsible for reporting, how frequently the books should be updated and where this information is going to be stored.
If you’re feeling overwhelmed and don’t know where to begin, consider seeking advice from an expert. As a new business owner, it’s common to want to handle everything alone, but an accountant will have the expertise to guide you through this vital initial stage. It’s important to get your plan right – it will naturally evolve as your business grows, but the basic outline should stay in place.
We tend to improvise if we don’t have a plan to follow, but this is the last thing you want to do when dealing with money! Remember that your financial process doesn’t have to be complicated, but it should be consistent. The time you take now will set the groundwork for the future success of your business.
Be clear on your budget
Research carried out by the CBI last year found that 38 per cent of startups failed between 2018 and 2021 because they ran out of cash. Creating a clear budget and being on top of cash flow can prevent this from happening to your new business. Key areas to include in your budget include projected income, regular fixed outgoings, variable costs, operating expenses and financial forecasts.
Having an easy-to-follow budget will provide an overview of your financial situation and make sure you’ve got money available to comfortably cover your costs. It’ll also help you keep track of your suppliers, allowing you to spot any areas of concern early before they can evolve into serious issues. It’s important to regularly review your budget and keep it up to date so it reflects changes in your business plan, development or growth, as and when it happens.
Clearly define your payment terms
The payment terms you use depend on the type of business you have. If you’re selling directly to customers, such as in a shop or restaurant, you’ll normally take payment at the point of sale. If your business sells products or services to other businesses, you may want to negotiate longer payment terms of up to 30, 60 or even 90 days.
Being flexible and offering long payment terms can help attract new business and build trust with your clients. However, it will impact your cash flow, so make sure you have carefully considered how this will affect your operations before extending credit. Whatever payment terms you decide on, make sure you have a clear document that sets out the terms and payment method that both you and the client have agreed on and signed. This will help protect your cash flow and avoid any difficult misunderstandings down the line.
Pick a day for admin
One way to simplify and keep on top of your business accounts is to set aside a day each month to complete your financial tasks. Knowing you’ve got a set time to review your accounts and process your invoices will help you easily keep track of late or missed payments.
Pick whichever day you want, but bear in mind that invoicing is usually done at the beginning or the end of the month, so it may benefit your clients and cash flow to follow this typical schedule. No matter what day you choose, never leave your finances to the last minute and always double-check the details on your invoices – sending the wrong information to a client is not only embarrassing but could also lead to late payments, lost business and even result in legal action.
Use digital solutions to help
If your business accounts aren’t up to date, you risk losing money, missing payments and damaging your reputation. While maintaining accurate financial records can seem like a complicated task, the good news is that record-keeping doesn’t need to be stressful if you put the right digital solutions in place to help. There are a lot of different options out there to consider but look for software that’s user-friendly, specifically designed for small business owners, allows you to carry out invoicing and track expenses, and is powered by the latest technologies to make the process as easy and efficient as possible. If it works with the Cloud and allows you to store your documents digitally, even better, as that means you’ll be ahead of the curve when HMRC introduces the Making Tax Digital rules for micro and small businesses in 2024.
Managing your finances should be at the heart of your new business strategy. After all, if you don’t keep on top of your accounts, they’ll quickly get out of hand. While the world of finance can be an intimidating one, it’s important to remember that you don’t need to become an expert overnight. Following these steps will help you learn and gain confidence as you go, laying the foundations for a lasting and successful business.
The author
Chartered management accountant Oumesh Sauba is the founder and CEO of MYT Limited, an award-winning, AI-driven accounting app and software, designed to support small and micro business owners with their bookkeeping
