Your West Columbia business obviously makes and spends money. The pluses and minuses add up (you hope) to being able to stay in business, and a look at the books tells you if your West Columbia business is doing okay or headed for trouble.
What are your books telling YOU?
In our experience, it’s often the company’s financial system (or lack thereof) that makes the answer easy to discover or downright difficult.
Have you looked at your own business’s financial system lately? Would you know how to read between the lines to interpret what you see there?
Because a financial system for a West Columbia business should provide a clear answer to that question. Such a system helps you function and takes the form of different records that let you — and such others as investors, lenders or auditors — see how your business is doing.
Let’s take a closer look at what folks like us will be looking for, shall we?
A Financial Systems Check-Up For Your West Columbia Business
“I value self-discipline, but creating systems that make it next to impossible to misbehave is more reliable than self-control.” – Tim Ferriss
First, a definition of terms to get on the same page. What you bring in and what you spend travels under a few different names.
Bookkeeping. Aka recordkeeping, bookkeeping is the foundation of any business financial system and lets you keep tabs on what’s flowing in either of the two directions that money takes in your business (in your door and out your door).
Depending on the size and complexity of each business, we’ve seen literal books kept, even handwritten, in a ledger or loose sheets of paper. You can also create simple electronic ledgers using Excel or some other spreadsheet program, or using a function in of the simpler business accounting software packages.
Invoicing. First step in generating income is invoicing. You must get paid.
The invoicing segment of your system should accomplish three things (these aren’t complicated):
1) Ensure that you get paid in a timely way.
2) Be something that you don’t need to spend too long maintaining
3) Communicate clearly to you and your West Columbia clients. (Is the amount the customer owes front and center on your bill?)
While most businesses include due dates on their invoices, many do not state their consequences for late payment. And how do you know it’s being delivered? Get a dependable delivery system: beyond snail-mail, a lot of businesses use email with a read receipt.
Income. Today there are a dizzying number of ways to get paid. Cash or checks remain okay for many businesses — though as always be sure to have safeguards to validate personal checks. You can use electronic transfers and payments direct to your bank, or you can use online payment services such as PayPal or Venmo.
Your payment policies can be more complex. These are the details of your payment schedules and discounts. For instance, does your customer get a discount for paying early or incur an extra fee for paying late? Refund policies are also key: spell them out clearly and completely because often there’s eventually conflict in a refund or return.
A word of caution here: managing cash flow is another part of a financial system, and one that can cause confusion.
Cash flow isn’t just income and outlay, but a matter of your day-to-day liquidity. If your business needs something, do you have the cash to pay for it? Cash flow is distinct from profitability, which tends to be more long-term. Managing cash flow also means having a sense of timing, knowing if you can spend cash against income that isn’t actually in your account yet.
Filing. Your financial system can’t exist without good records: the bills, receipts, invoices, and many many many other documents that pour into your business. You need to keep these on hand and in clear order for a set period.
You can keep paper copies in a filing cabinet, or go digital and scan and store documents in the cloud or on such external media as thumb drives. Most companies these days pick the digital option for convenience, space savings, and, hackers aside, security.
The taxman cometh. One more reason to keep good records is taxes. Good document management saves the stress of scrambling for records when it’s time to prepare your tax return for filing — not to mention backing up your argument in a dispute with a tax authority like the IRS.
Often storing documents is the least painful of preparations in this segment of your financial system. The bigger challenge is usually paying the taxes.
It’s key that your financial system can help you estimate and bankroll for federal, state, and local taxes. Once or twice a month you will need a good system to check the books and either set the money aside or send the amount due. Mess up in this part of your plan and you can face fines (or worse).
Financial systems differ with each company. If your business needs help with this, let’s talk: calendly.com/dhartaccounting/exploratory-meeting?month=2020-06
To making business easier,
D Hart Accounting Practitioner, LLC