MBS Accounting is a CPA Practice
Business Essentials
Here are the essential steps to gain financial control over your business:
1. Set up a business bank account and have a credt card linked to that account. Do not under any circumstances put business income or expenses through a personal bank account or personal income or expenses through the business account. If one account is running short then by all means transfer money across, unless we are talking a Company or a Trust set up. Transfers are easy to identify down the track, intermingling of business and personal expenses is a fast track to financial management chaos.
2. Record every dollar of income into the business. This is to be done by recording every sale that you make whether on a job sheet, invoice book,petty cash book or transaction journal. Under no circumstances is it advisable to rely on counting the cash in your wallet/purse at the end of the day/week.
3. If you are paid mainly in cash then buy a cheap digital safe ($40-$60) from a hardware store such as Bunnings because it likely you will be getting to the bank infrequently to deposit. Take out the cash from your wallet every 1 or 2 days and note on the back of the envelope in the safe the date and the amount of cash and put it inside the envelope, have a separate column for cheques. At the same time reconcile to your sales records, it doesn't have to be exact unless there appears to be a problem. When you get to the bank reconcile all the amounts written on the back of the envelope with whats inside.
4. Keeping the cash you hold at a minimum $20-$30 which you carry on you in your wallet/purse. Apart from ensuring that there will be a record of every business expense it has another benefit as long as you dont negate the benefit by withdrawing cash to make payments. If you find you are making lots of small cahs payments then set up a locked petty cash tin with a float and record payments by handwritten voucher into the tin.
5. Use a software package such as MYOB. Even the most basic business needs such a package to provide instantaneous P&Ls for whatever period of time you require which is vital information when making key business decisions . It is also is a great help in cash flow management issues with regards for budgeting liabilities such as GST and Superannuation.
6. Process all transactions at least once a week, Sunday tends to be a good uninterrupted time to do it. If you have a high volume retail business then you may need to process daily, it will depend on the capability of your cash register to capture and process required data. Once receipts have been processed for that week then file them in their separate categories. Check the business credit/debit card to make sure no payments have been missed. It makes sense to do the payroll for that week then as well.
7. Make sure the expense categories in your business software are concise enough so that at a latter stage you will have no doubt what that expense actually was. The more you break expenses down into subcategories then the more useful aggregated information you will have for decision making purposes. For example Car Expenses can be broken down into Fuel and Oil, Registration and Insurance, Repairs and Maintenance,Depreciation,Other (car parking,car wash etc)
8. If expenditure has both a business and private components then record the total expenditure and make private adjustments at a latter stage which will appear in your accounts like the following:
Telephone 100
less Private Usage 30
For GST Purposes you are allowed to claim the total cost. Once you have done your income tax at the end of the year the private percentage calculation would have been made and you will have to pay back the privately claimed GST on the proportion of the expense attributable to private purposes. Also your private percentages may change yearly making meaningful total expense inter year comparisons void unless this method is adopted.
9. Do not be unduly concerned with the balance sheet especially if you have just started out on the financial management journey. The balance sheet should have just the one business cheque account and credit card. It is irrelevant if personal withdrawals are cash withdrawals or transfers into a personal bank account.
10. An asset register is useful to have and can mean asset purchases do not have to be entered into your software package. Depreciation on the assets will not be calculated until year end anyway. With assets being pooled for tax purposes they do not need to be separately identified on the balance sheet and there is no need to duplicate the depreciation schedule on the tax return. Also most assets will be paid for on delivery and so non recording will not make liabilities erroneous. Recording of leased assets can be quite complex and in most cases would be best left to your accountant.
I hope you have found the above to be of use. Feedback is welcome.
1. Set up a business bank account and have a credt card linked to that account. Do not under any circumstances put business income or expenses through a personal bank account or personal income or expenses through the business account. If one account is running short then by all means transfer money across, unless we are talking a Company or a Trust set up. Transfers are easy to identify down the track, intermingling of business and personal expenses is a fast track to financial management chaos.
2. Record every dollar of income into the business. This is to be done by recording every sale that you make whether on a job sheet, invoice book,petty cash book or transaction journal. Under no circumstances is it advisable to rely on counting the cash in your wallet/purse at the end of the day/week.
3. If you are paid mainly in cash then buy a cheap digital safe ($40-$60) from a hardware store such as Bunnings because it likely you will be getting to the bank infrequently to deposit. Take out the cash from your wallet every 1 or 2 days and note on the back of the envelope in the safe the date and the amount of cash and put it inside the envelope, have a separate column for cheques. At the same time reconcile to your sales records, it doesn't have to be exact unless there appears to be a problem. When you get to the bank reconcile all the amounts written on the back of the envelope with whats inside.
4. Keeping the cash you hold at a minimum $20-$30 which you carry on you in your wallet/purse. Apart from ensuring that there will be a record of every business expense it has another benefit as long as you dont negate the benefit by withdrawing cash to make payments. If you find you are making lots of small cahs payments then set up a locked petty cash tin with a float and record payments by handwritten voucher into the tin.
5. Use a software package such as MYOB. Even the most basic business needs such a package to provide instantaneous P&Ls for whatever period of time you require which is vital information when making key business decisions . It is also is a great help in cash flow management issues with regards for budgeting liabilities such as GST and Superannuation.
6. Process all transactions at least once a week, Sunday tends to be a good uninterrupted time to do it. If you have a high volume retail business then you may need to process daily, it will depend on the capability of your cash register to capture and process required data. Once receipts have been processed for that week then file them in their separate categories. Check the business credit/debit card to make sure no payments have been missed. It makes sense to do the payroll for that week then as well.
7. Make sure the expense categories in your business software are concise enough so that at a latter stage you will have no doubt what that expense actually was. The more you break expenses down into subcategories then the more useful aggregated information you will have for decision making purposes. For example Car Expenses can be broken down into Fuel and Oil, Registration and Insurance, Repairs and Maintenance,Depreciation,Other (car parking,car wash etc)
8. If expenditure has both a business and private components then record the total expenditure and make private adjustments at a latter stage which will appear in your accounts like the following:
Telephone 100
less Private Usage 30
For GST Purposes you are allowed to claim the total cost. Once you have done your income tax at the end of the year the private percentage calculation would have been made and you will have to pay back the privately claimed GST on the proportion of the expense attributable to private purposes. Also your private percentages may change yearly making meaningful total expense inter year comparisons void unless this method is adopted.
9. Do not be unduly concerned with the balance sheet especially if you have just started out on the financial management journey. The balance sheet should have just the one business cheque account and credit card. It is irrelevant if personal withdrawals are cash withdrawals or transfers into a personal bank account.
10. An asset register is useful to have and can mean asset purchases do not have to be entered into your software package. Depreciation on the assets will not be calculated until year end anyway. With assets being pooled for tax purposes they do not need to be separately identified on the balance sheet and there is no need to duplicate the depreciation schedule on the tax return. Also most assets will be paid for on delivery and so non recording will not make liabilities erroneous. Recording of leased assets can be quite complex and in most cases would be best left to your accountant.
I hope you have found the above to be of use. Feedback is welcome.
