Keeping records of your budget
The two most important elements of budget management are:
- Separating your personal budget from your business budget. Keeping your personal and business finances separate can make recordkeeping easier and may help protect your personal assets. You should also consider keeping a separate current account, credit card and budget for your business. Separating these finances will make tax time simpler, help you create business credit history as well as help you protect your personal finances and better understand your business’s financial position.
- Knowing the basics of business accounting, and, if possible given your financial situation, working with a good financial consultant or accountant. Increasing your financial knowledge and relying on the help of an expert can help you avoid mistakes and even detect fraud.
Inside tips on tracking your budget
- Monitor progress toward creating an emergency fund. Companies face risks related to the economy slowing down, slow sales periods or an unplanned event. Creating an emergency fund will help protect you from these risks and prepare you to weather difficult periods.
- Review your income and expenses from time to time to ensure you aren’t missing any hidden costs, or living beyond your means.
- Consider hiring a certified accountant to help manage your finances if your budget allows for it. Note that even with expert support, you’ll need to take responsibility for monitoring and tracking your company’s finances closely.
- Carefully track the flow of money coming in and going out to make sure you can pay expenses if you have to wait for payments to arrive. Even companies with strong sales may face difficulties, or even be forced to close, because they can’t afford their bills or salaries while waiting on customer payments.
- Consider using credit cards to smooth your cash flow and pay bills while waiting on customer payments but only if you can afford to pay them off. Just remember to pay your credit card bills as soon as possible to avoid paying interest and stay well within your credit limit, or the maximum amount that you can spend with your credit card.
Pay on time, every time
Making late payments on bank loans or credit cards usually results in late fees, which can really rack up. More than this, it can affect your credit limit, your ability to get credit lines and your credibility in the eyes of other companies. Poor financial management can harm or even bankrupt a business. Just like with personal finances, it’s important to pay suppliers, bills and other debts on time in order to protect your business, your credit and your reputation.
Similar to budgeting, accounting is a process for tracking business finances. Accounting deals with recording, summarizing, analysing and reporting your business’s financial transactions, whereas budgeting can help you project expenditures on a monthly or annual basis. Of all the tasks and requirements that come with owning a business, staying on top of your day-to-day accounting should be on the top of your to-do list. Here are a few tasks to tackle as you get your business up and running:
Open a bank account
Having a separate business bank account makes recordkeeping easier and helps simplify paperwork when tax time comes around. If you formed an LLP or limited company, you’re legally required to have a separate bank account for your business.
Start tracking expenses
For budgeting as well as accounting purposes, tracking your expenses is an important part of keeping records, monitoring your business’s growth and checking your financial statements for errors. The first step is to develop a system for collecting and organising receipts in one secure place.
Develop a bookkeeping system
Bookkeeping is the day-to-day process of recording transactions, categorizing them and checking them against bank statements. Most business owners choose to use a spreadsheet software, or hire a bookkeeper for this task.
Businesses often use one of two accounting methods: accrual or cash. With the accrual method, transactions are recorded on the books immediately after a sale or purchase. With cash basis accounting, transactions are recorded once you receive payment, or a payment leaves your account.
For example, imagine you make a sale in January and receive the £200 payment in February. With the accrual method, you would record the transaction on January’s books. With the cash method, you would record the payment on February’s books.
Find an accountant – visit the ICAEW website