Many home-based startups are unsuccessful because they lack the necessary financial systems to keep track of their finances and cash flows. It is very common for home business owners who don’t like the idea of ​​keeping their own accounting records to think that as long as the money keeps coming in, their business will be fine.

However, it is not that simple when you are in business.

If your goal is to stay in business for a long time, you will need to understand your cash flow and financial situation for a number of reasons. (I’m not pointing at them to scare them, but to make them aware so they don’t make these common mistakes!)

Cash flow
This is critical to running a business. Without cash, your business can fail, no matter how much profit you make on paper. Cash is king. If you run out of cash, your creditors can take you to court to get payment or even try to liquidate your business.

Taxes.
As one of the few things in life that is certain, taxes are very important to any business, as non-compliance can result in serious penalties and even the loss of your business.

Therefore, you need to keep track of all your income and expenses while ensuring that the relevant tax entries are made correctly.

Reporting
You will need to produce reports for a number of reasons. Depending on the state of your business, it will be necessary to make different types of reports and presentations to the relevant authorities. Examples are an annual income statement, balance sheet, and cash flow. If you are self-employed, you will have to make annual returns, although not as onerous as for a corporation.

Controlling your business
One of the best techniques used to monitor a business is through the use of financial data. Your monthly reports tell you how well (or poorly!) Your business has performed and can highlight areas where improvement is required. It can point to certain indicators that all is not well. The things to look for are:

• Turnover: was it high enough?
• Profit margins: are they in range?
• Overhead: are your costs under control?
• Net profit: Do you really make any profit?

This is best done by comparing it to a budget or forecast. Most larger organizations prepare budgets for the upcoming financial year, and these act as a goal or business plan. Then you compare the actual results with the forecast to see how your business is performing and make any necessary adjustments if it isn’t.

Hopefully by now you understand the importance of having a good accounting system.

Setting this up doesn’t have to be complicated. We are in the digital age and computers make accounting much easier than in the days of large written ledgers.
Before choosing an accounting software, you should read my previous article on “Small Business Accounting Software” as this will help you decide what features to look for in relation to your own unique business.

If you have a very small business with few customers and little paperwork, you can simply use a spreadsheet to keep track of things. (I personally do this in a self-employed home business and it works well).

However, one advantage of using accounting software programs is that they will balance your books for you, taking away a potential headache!

All you have to do is enter the data on one page and the program will take care of everything else. Most accounting software programs will automatically perform the required accounting process and immediately update your account statements. Retrieving your data from an accounting program is easy too. Usually the software can generate the financial reports your business is likely to require (check this before you buy!)

This saves you such a great time that the software will pay for itself many times over.

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