Saddle up, we are now into the new financial year. It’s a great time to set goals for the new financial year and review your accounting practices and systems for your business. Accounting processes document all aspects of a business’s financial performance, so here are three essential practices to get you started.
Your business is a separate entity to you, so keep track of what the business spends.
The business you are running is yours. If you run that business through a structure such as a company, trust or partnership, then sometimes there is a tendency to blur the lines between yourself and the business. The entity running the business owns its own assets and incurs its own liabilities, and its business activities are separate to the owners. Ensure that you are purchasing items in the business entity name. Obtain the receipt and claim a business expense so that monies you take from the business are being accounted for correctly.
If you are incurring expenses on behalf of the business, ensure you are being reimbursed by the business, so you are not out of pocket.
Be aware of drawing monies from a company in addition to a wage you are receiving. These extra drawings could be considered a loan to you as the business owner, and they may need to be repaid within one year of being drawn down or you might have to pay interest on this loan. The options available to you to draw more monies or repay loaned monies are taking a larger wage or paying yourself a dividend as the shareholder to ensure the loan is repaid within the financial year.
Make sure the business can afford to pay its bills when they are due.
You are running a business on the basis that it will continue to operate in the future. It is important that you review your cash flow and creditor position for the new year to ensure you can meet all your financial commitments as and when they fall due. A cash flow forecast can assist with this. From your accounting software, you can download a detailed monthly profit and loss for the last financial year into a spreadsheet, then use this to forecast the year ahead based on the past history and what you have committed to for the new financial year. Identify any cash flow issues now, and put steps in place to deal with this such as bringing forward invoicing and following up on your debtors before you need the money to meet your financial commitments.
Update your accounting system, and know your numbers.
Upgrade your accounting software to ensure your business complies with the latest government regulation as these can change each year. Ensure that regular, accurate bookkeeping is being done so you can routinely review the business profitability in your profit and loss and balance sheet, monitor your cash flow, and manage and meet your tax commitments. Then, if your business is becoming more profitable, you can determine what the business can invest in or pay you for all your hard-earned work.