You need to keep track of transactions for the tax office, lenders, but most importantly for yourself, as a business owner.

1. Accounting software

With accessibility of cloud-based systems like Xero that are linked to bank accounts, it’s easier than ever to keep track of all your financial transactions.

You need to keep track of transactions for the tax office, lenders, but most importantly for yourself, as a business owner. A reliable and well set up system will provide you with information to ensure:

  • You pay everyone the right amounts, including staff, suppliers, business owners, lenders, tax office etc.
  • You know where you are making and losing money e.g. which products/services are most/least profitable, where you are going over/under budget on expenses, when costs are rising and margins being squeezed and it’s time to review pricing.
  • You get paid by your customers on time, by reporting who owes what and for how long. You can also send out statements/reminders easily to slow payers.

2. A Budget

This is without a doubt the most important tool in any business. If you go ahead and get on with business without a budget you are flying blind!

A budget is your financial roadmap that keeps you on track every month. It sets out how much you plan to sell, what your sales will cost and what will be your expenses and profit at the end.

Once you’ve developed a budget it needs to be entered into your accounting system, so that you can report monthly on actual versus budget. Better still if you use Float it links dynamically to your accounting system saving you lots of time and hassle. By doing this monthly you can see where things are on/off track and fix them quickly to avoid further unnecessary losses.

Check out this blog to understand the difference between a budget and a forecast.

3. A Cash Flow Forecast

If a budget is the most important tool, a cash flow forecast is definitely the next.

Achieving your sales and profit target is great, however if you don’t handle the cash side properly your business is at risk of failure due to lack of cash.

A cashflow forecast sets out in black and white when you expect the cash to come in and go out of your business. By forecasting, you are pre-armed with knowledge that you can act upon.

For example, if things don’t go exactly according to plan and cash looks tight for the future, there are several paths you can take to free up cash:

  1. Ramp up your sales efforts
  2. Inject cash into the business from loans, shareholders, or sale of assets
  3. Speed up payments from customers
  4. Speed up finishing jobs so they can be invoiced
  5. Or sell off slow-moving or obsolete stock

On the outgoings side you can:

  1. Reduce expenses
  2. Slow up payment to suppliers
  3. Arrange to pay off tax debts
  4. Delay payments to shareholders

4. Monthly Financial Management Checklist

The easiest way to ensure your financial management stays on track is to follow a simple checklist. This could include:

  • Monthly reports such as profit and loss report, balance sheet and a Cashflow Forecast
  • Outstanding customer amounts
  • Outstanding supplier amounts
  • Job management
  • Stock management
  • Detailed sales report by customer, product, and division
  • Reconciliation and payment of suppliers, taxes, superannuation
  • Reconciliation and follow up of customer amounts owed
  • Reconciliation of bank accounts and credit cards etc
  • Monthly accounting entries for non-cash transactions such as depreciation of assets and amortization of large amounts due such as yearly insurance (break it down into monthly amounts)
  • Tax returns such as GST/VAT and staff payroll taxes due
  • Reconciliation of Work in Progress and stock on hand
  • Reconciliation of intercompany loans/accounts and suspense accounts
  • Foreign exchange transactions – accounting for losses/gains

5. A Spreadsheet System

A spreadsheet is a great tool for calculating things like:

  • Pricing – you can gather up all your direct costs then add on a margin to work out price. Conversely if you need to adhere to a price you can deduct a margin and work out how much you have available for cost of the item.
  • Markup – once you know your cost you can add on a markup to achieve your desired margin.
  • Breakeven – this is a very important number to understand. It’s the sales you need to make to cover your running expenses after direct costs of the product/service.

As well as anything else really that you want to work out to ensure you’re on the right track.

6. A Logical Brain!

Businesses run on ‘gut feel’ can sometimes succeed, however those run with good logical thought processes are much more likely to prosper.

Selling things you love is great, but if you’re not charging the right price and running things efficiently and cost-effectively, you will really struggle to make a good enough profit for all your efforts. It’s so easy to decide on a price by simply trying to match competitors.

If you aren’t absolutely sure what price you should charge your customers, you could risk not charging enough and eventually go out of business due to lack of profit. Taking some time to do some proper analysis before you get started can save you lots of headaches and agony down the track. It may seem like a boring and unnecessary step when you just want to get on with the exciting stuff of selling and making things, but it will save you lots of money if you pause to ensure you’re on the right track at the beginning.

If you’re not a natural left brain logical thinker (many entrepreneurs are right brain creative) do yourself a favour and find someone who can guide you and keep you on the right track. They could be a great resource and ‘sounding board’ for your fantastic ideas to ensure they are profitable!

This is a guest post by CFO On Call, for more information visit