The essential guide to mastering your business finances

Divide and conquer!

When starting your own business, there are so many areas to get your head around. Marketing, stock, suppliers, staffing … the list is endless. One of the most important areas is your business finances.

Taking small, regular steps to manage your finances will put you on a track to profitability.

We’ve rounded up some of the weekly, monthly, quarterly and annual tasks you should be scheduling in and what you need to know about each one.

Weekly accounting tasks

If you stay on top of the smaller administrative financial to-dos, then it won’t be as much of a chore at tax time. So set aside some time each week for these three tasks.

1. Check your cash flow status

Knowing when money will be coming in and out of your accounts can help you pay bills, taxes and superannuation obligations.

The aim is to have a steady flow of money in and out, rather than riding a rollercoaster each month.

You can smooth things out by:

  • Putting regular amounts aside each month for bigger payments
  • Regularly reviewing expenses and cancelling unnecessary charges
  • Building up a savings buffer to help with unexpected costs

You can use a simple cash flow spreadsheet such as this one to get you started.

2. Send out invoices

Business Finance Person Writing at Desk
Follow up on any invoices that haven’t been paid in the time frame printed on the invoice.

Many business owners are reluctant to send invoices and chase them up. While the reasons for avoiding this may be complex, it’s an essential step for maintaining your cash flow.

Make sure you have clear policies and processes in place for:

  • Collecting deposits
  • Payment terms
  • Cancellations and refunds
  • Terms of service

Having an invoicing system such as MYOB, Xero or QuickBooks makes invoicing a breeze. It also gives you a clear overview of key payments coming in and out.

3. Allocate expenses

Whether you use a system like Profit First or something similar, you should know exactly what your expenses are for each dollar of income you make. Using a percentage-based system makes it easy to allocate expenses with set percentages.

For example:

  • 5% profit
  • 20% tax
  • 30% expenses
  • 45% owners pay

This helps to control spending, and ensures you still have some money left over each week.

Monthly accounting tasks

Once a month it’s good practice to take on some more in-depth financial tasks.

1. Account reconciliation

Reconciliation is the act of making sure the information showing on your bank account statement matches what your own records show. Doing this monthly helps to break the chore up into manageable chunks. It also reduces your tax-time stress if there are any discrepancies you need to track down.

2. Profit and loss statements

A profit and loss statement reveals the overall picture of health for your business finances.
Usually profit and loss statements will include all your sales as well as all your expenses for the period. The difference in the two figures will show if you have a profit or loss for that period. If your business is healthy, you will have money in surplus each month, once all your expenses have been taken out.

3. Check in on your break-even point

If you don’t know your businesses break-even point, you may be working tirelessly in an ultimately unprofitable business.

This is when your business has made enough income to cover the expenses of doing business for the year.

This point will be different for every business, but the earlier in the financial year you meet this, the more profit you’ll make for that period.

To calculate your break-even point, you can use this simple formula:

Break-even point = Setup expenses + yearly expenses /sales income

You can also check out some of the many break-even analysis calculators available.

Quarterly financial tasks

Business Finance Report on Desk
Knowing where you are now will help you steer your business into the future.

In Australia, the financial year runs from July through June, and is broken up into quarters. Following the same flow with your business finances allows for neat 90-day goals. It also helps you keep up with the rhythm of your Australian Taxation Office (ATO) obligations.

1. Business activity statements

Once your business turns over more than $75,000 in any 12-month period, you will need to register for GST.

As part of your GST collection obligations, the ATO requires you to complete a quarterly report called a business activity statement. This report shows your overall income for the period, how much GST you have collected and any expenses you have paid GST on that you’re eligible to claim back.

2. Pay As You Go (PAYG)

If you’re a sole trader, you will probably still need to pay tax on income you make through your business. Calculating and lodging your Pay As You Go tax obligations on a quarterly basis can help avoid a shock at tax time.

The ATO has some useful calculators to help you work out how much you should be paying every quarter in PAYG tax.

3. Check in on your key performance indicators (KPI)

Although they are probably the one thing you were hoping to leave behind in your day job, KPIs are important measures of success. A KPI is a measurable value  — gross cash revenue, for example — that shows how effectively you’re reaching your goals.

One process for mapping your KPIs is:

  • Audit where your business is currently across key areas such as income, sales, profit, marketing results, customers and expenses
  • Think about where you want to be in your business in 12 months’ time. An improvement of 15% each quarter will give you approximately 50% growth in one year. If you wish to double your business in a year, you’ll need to grow by around 25% each quarter.
  • Once you’ve decided on your KPIs, create a strategy to ensure you’re meeting those.

Then plan regular reviews to check that you’re on track, re-evaluating and adjusting your targets if needed.

Annual business finance tasks

The start of the new financial year in July is the best time to get all your financial records ready for your accountant. This will include your:

  • Profit and loss statements
  • Balance sheet (a list of your assets, equities and liabilities)
  • Trial balance (how much is in each of your business accounts on a set date)

You’ll also need to have records of expenses you need to claim in your tax return ready. A few other annual tasks:

1. Expense review

Business Finance Receipts
Knowing where you spend your money is the best way to control your finances.
Photo: Carli Jeen on Unsplash

Take some time to assess your expenses and see if you can reduce these, especially areas like subscriptions and memberships you may not be getting the full benefit from. It’s also a great time to shop around and see if you can get a better deal on your loans, utilities and insurances.

2. Planning ahead

Review your business plan and see what areas you’d like to grow in the next year, and how you can make this happen.

In the finance section, review your KPIs from last year and plan new goals, as well as how you can finance improvements — perhaps looking at grants, loans or new sales strategies.

3. Budgeting

The starting point for your business finances should be with your budget.

When you’re first starting out, this document is a mixture of fortune telling and educated guesses.

But as you start to collect data, you’ll know where to grow and where to cut back. By entering all your business expenses into a budget spreadsheet, you can quickly see how much it will cost you to run your business for the next 12 months.

Once you know your expenses, you can start to play around with figures — for example, how many customers need to buy your product or service every week or month to meet your expenses.

Business finance made easy

The steps described above will give you the data you need to grow your business. By completing these weekly, monthly, quarterly and yearly tasks, you’ll be able to quickly spot areas for growth and adjust when things are getting off track.

And you’ll no longer dread tax time.

 

By regularly setting aside a small amount of time, you’ll save yourself the days of stress and panic at tax time. Armed with this information, you’ll make better decisions, setting your business up for success.

Tanya Abdul Jalil
Tanya Abdul Jalil is the effervescent and straight-talking owner of Your Business Wife, a small business consultancy for copywriting and content creation. She helps overwhelmed small business owners get better quality sleep by taking the stress out of creating and maintaining their online content. She’s passionate about helping women reach their full potential, make bold career moves and live their dreams.