Starting a business is a great achievement for many entrepreneurs however, maintaining it may pose a serious challenge. Common challenges that businesses face, whether new or old, large or small, include; building a brand, developing a customer base, hiring the right talent, etc. As business owners, it is easy to get overwhelmed, particularly with the amount of financial information you must track and store. It is important to have a record of business transactions to ensure that your business operates smoothly and efficiently and also indicate that you are compliant with all business rules and regulations.
Business transactions that need tracking include:
- Day-to-day transactions: these include payroll checks, purchase orders, customer invoices, teller transactions, time sheets for every employee, etc
- Monthly transactions: at the end of each month, its a time to review the transactions that occurred throughout the month between you as the business owner, customers, suppliers, etc. Some of these include transactions recorded in the bank reconciliation, sales report which shows total sales for the month, payroll register, balance sheet and income statement which show earnings for a certain period as well as assets and liabilities. Accounts payable and receivable will then also show how much you owe and how much is due to you at the end of every month.
- End of year transactions: at the end of each year, you are then able to review all the transactions that occurred throughout the year. Here, you generate the income statement, balance sheet as well as statement of cash flow.
Keeping track of business transactions helps you make better financial decisions by being financially aware, helps you be prepared for tax season, and lastly know your financial status. In making better business decisions, you are able to plan for future goals and strategies. Tax in itself is a complete nightmare and some financial mistakes may breed serious complications and consequences, so it may be better to have systems in place that will ensure or rather mitigate making bad financial mistakes.
Every business goes through ups and downs and as a business owner, you want to see more ups than downs. With that said, you should know what works for your business and what does not. The best way to figure out what works in favour for your profit or not is the ability to track your income and expenses. The best way to approach it is to implement daily habits and tasks that will make an impact at the end of your financial year.
Always have a separate business bank account where things are categorised. Once you have a separate account, it saves you more time from separating business purchases from personal ones. Many small and growing businesses tend to take this for granted but it causes so much chaos when you use your personal account for business as well. Separate the two for better tracking. Another important thing to consider is how you store your receipts and invoices. Always try to have hard copies and soft copies for backup where possible. In fact, technology has allowed us the ability to store information digitally and do away with hard copies of anything. Paper receipts and invoices are difficult to store and manage.
Lastly, where feasible and cost-effective, invoice digitally. There is less room for errors and this is a process that requires utmost precision. With digital invoicing, you are able to track paid and unpaid payments. Make things as effortless as possible.
