Bookkeeping BasicsAug 01, 2021
As a business owner, it’s hard managing all the different aspects of your business. And if you’re a couple in business, you are each generally focussed on the tasks you’ve taken responsibility for (or have the natural talent/experience for) in your business.
If knowing your numbers doesn’t come easily to you, then understanding your business finances often becomes an ‘I’ll get to it later’ task, like tax time or when cash flow is low.
Knowing Your Numbers
While every business is different, there are some financial foundations you should keep a regular eye on. Your bookkeeping basics.
Let’s look at what they should include:
- Regular expenses – these are your outgoings. Things that you purchase in order to run your business, produce products and deliver your service.
- Regular payment dates – knowing when money is coming out of your accounts to manage cash flow eg monthly direct debits.
- General running costs – the ongoing costs to ‘keep the doors open’. What it would cost you even if you had no sales. Things like rent, perm staff salaries, electricity, subscriptions.
- Profit & Loss Report (P&L) – your comparison of what you are paying out (expenses) versus what you are bringing in (sales). If your sales are more than your expenses, you have a profit, if your expenses are more than your sales you have a loss.
- Debtors – customers/clients that owe you money for products/services provided, including how much in total is outstanding/overdue.
- Reconciling – having a system to ensure bills you owe are accounted for in your accounting/tracking system to keep your cash flow status current
- Bookkeeping management and systems – how your bookkeeping is managed and the processes used to ensure accuracy and up to date information. Written processes that can be referred to, updated and used for training others are best.
- Cost of your products/services – the breakeven figure to supply each product/service you offer, and the breakdown of what it costs to supply your products/services.
- Budgets/goals versus actual sales – how you keep track of what your business is aiming to achieve versus what your actual results are.
Now we’ve looked at an overview of the bookkeeping basics you should be across in your business (and reviewing regularly), let’s look at why you should know your numbers.
It may seem obvious why you should know your numbers, but you may just find below some additional reasons you hadn’t thought of.
The Financial Purpose Table breaks it down for you.
For each foundation listed, the table shows:
- the purpose for monitoring them closely in your business and how putting a system in place to manage them will help your business
- how you can maximise each foundation for efficiency.
Maximise for Efficiency
Knowing your numbers and using this knowledge to maximise their efficiency is how you gain back time in your business (something we could all use a little more of).
Here’s an overview of how maximising helps:
- Review regularly: if you are always reviewing the things in your business that can make a difference to cash flow, you will stay ahead of any issues. Expenses going out and money owed to you in outstanding sales/invoices are two of the biggest issues for business owners. Juggling what bills to pay and chasing outstanding debt are not the best use of your time. Avoid this by being across these two essential foundations.
- Automate – take advantage of this massive timesaver anytime you see an opportunity in your business
- Documented – having important information at your fingertips so you can make informed decisions is crucial. Keep figures such as product costs, running costs, even a list of direct debit payments and your budgets/goals are business basics you should have easily accessible at all times.
- Systemise – repeating tasks and reinventing the wheel are time zappers. Having written processes for common tasks and tasks that require consistent attention to detail will keep your business running well and allow you to train others or outsource with ease.
Along with bookkeeping basics and knowing your numbers, a good accounting system is important to set up your business foundations.
If you can, I always suggest investing in an accounting system before you are ready. Getting your chosen accounting system set up and working for you before you hit growth mode is much easier than trying to learn a system while your business is taking off.
I use Xero and recommend it to all of my clients. It is the most user-friendly, adaptable and practical accounting system I have used (and I’ve used a few as a bookkeeper!).
You can try it out for yourself and sign up for a 30-day free trial here: XERO
So that’s it. Your bookkeeping basics.
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