You may be a business owner who doesn’t get excited about bookkeeping, taxes and financial statements. So, why not just hand your books over to the accountant and pay them to tell you what you need to pay at the end of the year for taxes? Why is it better for small business owners to actually understand what’s going on with their finances? What benefits does it bring to you? Why would you spend your valuable time understanding the way these money matters work in-depth? The truth is, there are benefits to really getting a grip on your finances.
Every small business owner should have an element of understanding of what the finances are doing, including:
1) How much money you’re making
2) How much cash you’ve got
It’s very easy to hand off information to an accountant or whoever and be told, “This is your profit, and this is the tax you’ve got to pay.” The information you often get is very historical. It’s not useful when you need it most. You need information to be much more current and up to date. You should have a handle on what you need to be doing the next day or over the next 90 days in your business.
Without the right knowledge, you can’t really effectively manage your business. At any point, you need to:
- Forecast what your cash flow is going to be like
- Understand what your profit is from one month to the next
- Assess whether what’s happening in your business is working or not
It’s important to understand business finances at a reasonable level and to work with an accountant who uses layman’s terms to explain it all. I advice all my coaching clients, trainees and mentees to learn to do their own basic bookkeeping (there are some great evening classes around or even simple books from your local library or book shop) to begin with, keep it in-house as you grow your business and regularly review your profit and lose and your balance sheet if not every week, then at least every month! Yes make use of an accountant and let them do the hard work as far as tax and maybe VAT is concerned, but to truly build your business you must have a hand on your KPI and that includes those important figures!
What will you do differently going forward to better manage your business finances?