4 effective bookkeeping habits to adopt in 2020
- Regular contact with your business plan (plan for big expenses such as tax, rent and people)
- Process receipts and keep records (easier than ever with apps)
- Regular invoice chasing and processing
- Regular oversight of books
Too often at Ozlop we meet with entrepreneurs who have turned their business dreams to reality, only for it to become a nightmare because they made poor financial decisions without first checking the books. If you want to build a sustainable business, then it is vital that you get into some regular bookkeeping habits which will strengthen your cash position.
Here are four effective bookkeeping habits that all small business owners should embrace.
- Set time aside to check the books
Whether times are good or bad, the best thing you can do for your business is set time aside to look at the books. It is surprising how few business owners see bookkeeping as a priority, with research showing that just 7% of small business owners check the books monthly and 23% once a quarter.
If you are unfamiliar with your cashflow forecast (that is how much money is coming into and going out of the business), how can you make informed decisions about when to invest in your business or cut back? Consider this, if you suddenly needed to pay a big tax bill would you have enough money left to pay staff or suppliers? Do you know without first checking your bank balance?
Only by having regular oversight of your books can you make strategic plans for the months ahead.
- Get on top of your invoices
At Ozlop it is not unusual to meet customers who find it difficult to get paid. Part of the problem, however, is that owners are disorganised when it comes to keeping track of who has paid and who hasn’t.
Let me tell you about electrician Rob, for instance, who was close to returning to full time employment because his business wasn’t making enough money to cover his running costs.
Rob came to Ozlop for help getting his books in order after a few stressful months which resulted in him having to make deals with suppliers. The problem was Rob was so busy at the start of the year he decided that the business admin could wait for a quiet spell. When he finally got around to issuing invoices, he was left waiting for months to get paid.
To make matters worse, Rob agreed to staged payments with some customers but then failed to keep track of who had paid him what, and when.
With help from Ozlop, Rob was quickly able to get his books organised so he could chase down unpaid invoices. And because Ozlop was able to take over the bulk of the bookkeeping – including processing those unpaid invoices – Rob was able to become proactive about invoices by sending reminders ahead of the payment due date.
- Understand your spending and regularly process receipts
As well as understanding how much money your business is owed, you need to have regular oversight of how much it is spending. The easiest way to do this is by keeping real time records of your receipts by using tech. Apps such as Receipt Bank, for instance, allow you to simply photograph a receipt and upload it for processing.
Regular receipt processing will give you a clear understanding of what your business is spending so you are better placed to make decisions about when to make changes that could have boost your income.
- Take regular interest in your business plan and keep it up to date
When was the last time you looked at your business plan? This important document provides a clear framework and financial structure for you to work within, the problem is many business owners soon forget about it once customers start calling.
If you don’t take the time to look at your original business plan, how can you check whether your business is achieving the ambitions you had for it? If you haven’t got a plan, taking the time now to put your projections down on paper is time well spent. In fact, the more time you spend on your plan, the better prepared you’ll be for any unexpected bumps in the road.
In my view, there are some key items to include in your business plan:
- Revenue (sales) projections
- Costs projections
- Profit projections
- Contingency costs (because suppliers will often cost more than you think)
- You should think hard about the cost of delivering the product or service and make sure you have your metrics for growth
Once you have a solid business plan you will need to review and amend it regularly to reflect the business finances. Used together this will give you all the information you need to make informed decisions that will boost your business.
Embracing some good bookkeeping habits should save you time and money in the long-term and give your business a solid foundation from which to thrive. Why wait?