I often hear business owners saying, “my accountant looks after that,” or, “I know I’m ok if I have cash in the bank.”
In this day and age, this attitude won’t fly.
Whilst an accountant looks after accounts from a compliance perspective (i.e. tax returns, company law requirements), we are living in a fast moving, dynamic world, and business owners simply cannot make effective decisions without understanding their businesses’ finances.
How can you know how much cash you can afford to take from your business if you have no idea of your liabilities?
Are you constantly working out what’s left to be paid out of your bank account to work out your real “cash” position?
As a business owner, you are always busy, but is this actually translating into sales?
Or business could be booming, you’re making sales left right and centre, but are you actually collecting the cash?
(a)Understand your business’s finances – its costs, its revenues, its assets and liabilities; and,
(b) Measure your business’s finances
can, result in difficulties and ultimately, business failure.
Understanding is obtained through preparation of a budget (we’ll talk about that at a later date), but today I want to talk to you about measuring your business’s finances.
Measuring your business’s finances will highlight problem areas – where sales are less than expected, or where costs are out of control.
It will help motivate you in business – the life of a business owner is often lonely, so this will spur you on when you’re feeling a bit flat, or start a fire under you if corrective action is required
Measuring your performance will help you to estimate your tax liability, a massive unknown for many business owners. Income tax or corporation tax can be a material payment, with a significant time lag, so you want to have an idea of what’s going to fall due, or if there’s anything you can do to reduce that liability.
For many years, accounts preparation has been a mundane task, which requires a significant investment of time.
Bank accounts can now be linked to your accounting package, meaning that transactions are captured on a real time basis.
In addition, supporting documentation can now be scanned on your phone, and easily linked to transactions.
This means that your bookkeeping is completed as you go, and you have an up to date profit and loss account at all times.
As well as linking to your bank account, invoices can be raised directly from Xero. Cash is matched within the system (at the click of a button), meaning that you can get an up to date view of your accounts receivable ledger at all times.
Given that businesses are often so poor at cash collection, this is a significant feature.
You can also scan purchase invoices as soon as you receive them, ensuring you constantly have an up to date creditors ledger.
So much of the stress of running a business is keeping a track of who owes you money and who you owe money to.
Using Auto Entry in conjunction with Xero eliminates this stress, freeing up your time to work on the success of your business.
Both Xero and Auto Entry are user friendly, and require just a little time to set up. Running costs won’t break the bank- currently, the basic Xero package costs $10 per month and Autoentry €11. The upside of having a real time overview of your business’s finances more than outweighs the initial investment, and something that should seriously be considered by all business owners.
Contact us today for assistance with setting up a simple accounting system for your business!