A business is more than just buying and selling goods and services. It would be easy if it was, but then the business would find it harder to grow any larger because it would never know how far it had already come. Accounting can be tricky, but you don’t have to be a math whiz to keep track of business transactions.
The name of the game is cash flow, and cash flow can be either positive or negative. When money comes in it is positive. When it goes out it is negative.
Many companies experience financial trouble because they can’t get a handle on their books. Start off on the right foot to keep the cash flowing in a positive direction. Look at your budget. Here are some tips on tracking your business transactions:
1. Write it down. It can be a ledger book or a spreadsheet. Spreadsheets are easier, but until you get a computer for the business, use a computer spreadsheet. Start with the balance forward when you begin your business. From there, you can start counting your monthly payments going out and receivables coming in. Starting businesses deal in cash in either money or check form.
2. Use categories. Money comes in and goes out, but for what? Use cash in and out as general headings with specifics recorded underneath. You may pay out $3,000, but it needs to be stated that it was for rent, supplies, and advertising. This will help to set up categories in a general ledger later on.
3. Manage your cash flow. Who will handle the books? It has been seen time and time again in personal finances; if more than one person is withdrawing money, the accounts can quickly get out of sync due to lack of communication. Choose one person to handle the financial aspect and have a chain of command for processing money received and payments made for services.
4. Use a master checkbook. One checkbook is better than two. One check writer is better than two. When paying bills, use a numbered checkbook and keep the checks in consecutive order. Many checkbooks have either a carbon copy or a small portion that is used to record the amount and the payee attached to the check. It is left behind when the check is torn out.
5. Make deposits every day. Some people are tempted to wait until the end of the week to deposit their checks. This is okay for personal accounts, but it is crucial for business that the correct date of payments has a trail of verification. It is good for the business too, in case there is any question about transaction dates.
6. Collect monies from clients as soon as possible. The longer a payment goes unpaid, the longer your books will be unbalanced. The records may show that a transaction took place under the accrual method, but your coffers will be empty. Keep payment terms to thirty days and no more than sixty.
Businesses, though meeting a need, can go under if their finances are in disarray. These simple ways may seem like a lot at first, but they will quickly become habit and – if you haven’t already – you will be thankful that you applied them.