How you can Find Freedom in Your Financials.
For most small business owners the main reason we go into business is because we are passionate about what we do, we believe in what we have to offer, and we know it will change our clients lives for the better. We spend so much of our time giving and sharing our knowledge to our clients that we tend to ‘forget’ about ourselves and often the first thing to be left behind is our finances – business first (usually) and then personal.
All of a sudden we are on this crazy roller coaster ride that is self employment. We are busy networking, contacting prospective clients and working with our existing clients that we put our finances in the “To Do Later’ pile which quickly becomes the ‘Oh goodness I still haven’t done that’ pile. Little by little we let things slip, we started out with good intentions and kept all our receipts in one spot but as time went on one got lost, then a few more and then before we know it we are finding receipts, invoices and bills all over the house, the car and in our handbags.
It becomes overwhelming, stressful and a little scary to think about the finances, so we concentrate on getting more business in the door. That will solve all the financial worries. Or will it? See the problem with increasing your sales in most cases that means increases to your expenses and a decrease to your available time which puts you back on that hamster wheel of not getting to your finances. The cycle continues, your stress levels increase and suddenly that thought crosses your mind that you would love to go back to a job where you got paid every week and had none of these worries.
Through specialising in working with women small business owners I have noticed that there are 7 problems that they all face with their finances:
They do not know what their personal expenses are. Being self employed means the days of a regular income into your bank account on a set day each week is long gone. Now more than ever it is important to know what your personal expenses are as without knowing your personal expenses are you can’t know what your business needs to earn to cover these expenses.
ACTION: Take 10 minutes a day to start going through your bank statement/receipts/bills and collate your expenses into a spreadsheet or even on a piece of paper. Do not try to do it all at once as I have found that is to over whelming and you never finish it. Be gentle on yourself and just take 10 minutes when the house is quiet to do this each day until you are finished.
They do not know what their business expenses are. Whether you are new to business or have a business which has been around for some time you need to write down, again in a spreadsheet or on paper, whatever works best for you, your business expenses.
ACTION: Start with your regular monthly expenses, insurance, rent, wages etc, then move to your regular annual expenses such as workers compensation etc. These expenses are generally fairly similar in amount each period and although they can change a little it shouldn’t be too much to make a huge difference. You then need to go through and write down your expenses that vary each month. For example if you sell products you may have higher sales during the summer months than the winter months so you can estimate based on previous months/years or if you are a new business you can estimate.
Remember both these documents are living documents and will change over time. These exercises are designed for you to make a start and are not set in stone.
3. They don’t have a system which is simple to use and follow. Many small business owners unless they are in the Accounting or Bookkeeping field base their system on what others do. Now again this is not a bad thing and any system is better than none yet we don’t take the time to find a system which is simple, easy and useful to our business.
4. They do not keep accurate records. As a result of point 3 many small businesses do not keep accurate records of their income or expenses. The ATO requires that these need to be kept for a minimum of 5 years and for certain records this is extended to 7 years. Not understanding the ramifications this has and what will happen with the ATO when your business is audited and you do not have copies of your invoices and receipts to substantiate your claims. I have found most small business owners think that bank statements are enough for the ATO in the event of an audit which is unfortunately untrue.
ACTION (3 & 4): Speak to a specialist in cloud bookkeeping and integration who can help you find solutions which can automate the data entry side of your business so you no longer have to deal with those receipts.
5. Not complying with ATO requirements. Depending on your business will depend on what requirements you will have and what time frames you will have to lodge them with the ATO. If you are not registered for GST and are over the threshold or if you are registered for GST but don’t have a valid tax invoice or you may have employees and are not paying them correctly or remitting the correct amount of tax for them or that you are not lodging your BAS on time. These are just some of the issues that may arise as a result of point 3 and point 4 and these issues may flag the ATO and result in a audit.
ACTION: Check with the ATO that you are meeting all your requirements with them.
6. Assuming that the bookkeeper and Accountant know every little detail of your business. Don’t assume your bookkeeper or accountant knows every detail of every transaction you do within the year. If there is something you are not sure of you need to ask your bookkeeper or accountant to clarify the issue so it can be recorded correctly to ensure there are not serious ramifications down the track.
ACTION: Make notes throughout the year of any transactions ie. purchase of a vehicle, that you should highlight to your bookkeeper or Accountant.
7. Not looking for a more efficient option. That may be looking at outsourcing to a specialist to take care of your bookkeeping for your. A great specialist in this field will review your current system, recommend options to streamline it through the use of cloud based solutions, look at ways to remove duplication of data entry and most importantly work with you to help you understand the money side of your business. As a small business owner it is vital that you know where you business is at financially at any point in time and by handing this over completely you run the risk of being in now better situation than you were before.
ACTION: Start making enquiries with specialised cloud bookkeepers/integrators who includes ongoing (at least monthly) chats with you about your business finances.
Once you have set up a system and have access to accurate financial data you can start making business decision based on financial facts. Once we start making decisions based on financial facts and once you start taking the time to understand this part of your business you will reduce your stress, have more freedom and enjoy your business so much more.
Contact Katie today to help you start your journey.