Do you take enough time to assess your financial position? It’s easy to get caught up in the day-to-day activities of running a small business, but having an accurate overview of your finances at all times should be a priority. So here’s the Hour Hands tips on what to look for.
If you pay attention to all these aspects of your business finances, you’ll empower yourself to make smarter financial and management decisions. And if you’re short of time, the Hour Hands Business Service team can work with you to help set up and manage all aspects of your business systems and strategy. Contact us to find out more.
Profit and Loss, balance sheet, and cash flow statement
These are the most powerful financial tools at your disposal, yet a surprising number of businesses ignore them.
Profit and Loss
Your Profit and Loss provides you with a simple overview of how your business is doing. It breaks down what is coming in and what is going out – your sales and expenses. You don’t need to be an accountant to know that one must be bigger than the other to gain a profit, and your Profit and Loss shows this in a simple format.
Your balance sheet is a good indicator of your company’s stability and liquidity – it will tell you if your financial position is weak or strong, and list your assets or liabilities. Hour Hands could help you set up and interpret the first one, if you find it overwhelming. But don’t avoid it—it’s an extremely helpful tool for running your business. It can show you:
- The net value of your business
- Current and long term debt
- How effectively you’re managing your assets
- Changes in cash, accounts payable/receivable, equity, inventory, and retained earnings
Cash flow statement
More businesses fail because of cash flow issues than for any other reason. So it makes sense to keep a watchful eye on your cash flow statement. Updated on a daily, weekly, or monthly basis, your statement can be a simple spreadsheet or a more dynamic report created with software such as Xero or QuickBooks. It will tell you about any money you owe, or that’s owed to you, so make sure you regularly look ahead to see if you have enough cash to cover critical areas such as payroll and other expenses. Always make sure you invoice clients as soon as your work is done, and don’t be shy about regularly chasing late payments. Cash flow is king. Also, don’t forget to make a note of your VAT payment dates, and consider your payroll responsibilities when you employ staff.
What is your plan for the next year? How much do you want to sell? How much profit are you aiming for? What do you think you will spend on marketing? Are you planning to hire more staff? Making a budget will help you to formulate a robust plan, and to track it.
All the above reports are only a button-press away if you use a bookkeeping system and ensure your data is up to date. Spreadsheets will work too, but they’re not as automated and require more work from you to update them.
We strongly recommend that even very small businesses use a proper bookkeeping system – they are very affordable and surprisingly easy to use. And if you’d like some help then Hour Hands can even set it up for you.
Other things to consider
- Have you set up workplace pension contributions?
- Are you on top of financial documentation, such as receipts – have you recorded them all, and are your recorded documents filed?