For many people going into business for the first time one of the biggest and most frightening challenges can be looking after the financial side of the business. From the day to day booking basics through to profit and loss accounts and balance sheets the whole field can look like a hugely complex jumble of mathematics and witchcraft to the uninitiated, and the situation isn’t helped by the tendency of some accountants to make it sound even more of a nightmare by bringing in horror stories of penalties for non-payment of tax, or non-disclosure of accounts. But is it really as complex as it appears? At root there are some fairly simple principles, and if these are maintained, the nightmare can become simply a chore, one of many chores that as a business owner you will face.
There are some very useful, and quite straightforward course both online and off-line that as part of the process of looking to set up a new business you would do well to investigate, but at root the purpose of basic business accounting is to understand and keep track of the money coming into and going out of the business. It should be pretty clear why this is important, but just in case, you should, as part of your business plan have put together a well reasoned expectation of both business costs and business revenue, and established that the business was going to at least cover its costs within a reasonable time frame. If you are not keeping track of the money coming in and going out how can you establish whether the reality of running a business is matching up to your planned expectations? It could be, and often is the case that at the planning stage, costs are underestimated and revenue is overestimated but this is not always the case.
By knowing what is coming in and going out it is possible at an early stage to modify your business practices. If you see that costs are significantly higher than budgeted for in the business plan you can analyse where those costs are higher and where you can make savings. If revenue is low you can again analyse why and make modifications to price or sales or whatever is needed. Without that knowledge you can quickly find yourself in a position of financial difficulty, and if the situation has built up over time, a position so severe that it can destroy the company. This may sound dramatic but it can be surprising how quickly things can get out of control.
There is a further benefit to gaining an understanding of business finance practices in that once you have established a routine for basic book keeping, the process of recording incomings and outgoing it is then possible to explore financial planning, and to look towards future growth of the business. All businesses, if they are to be successful in the mid to long term need to build a financial buffer against market conditions and to allow for future investment. Even if, as a business you don’t want to grow beyond your starting position there will be some months that are better than others, and there are always bills that still need to be paid. By taking the time to learn the basics of accountancy you will not only understand your business better, but when it comes to the more crucial and complex aspects of accountancy such as taxation planning and preparation of year end accounts you will be in a better position to understand what your accountant is talking about, and perhaps more importantly, whether your accountant is looking after you properly.
In business it is crucial that you are never overwhelmed by your own business. Many of us are not great with money and figures if we are honest, but the point is that you don’t have to be. You just have to get the simple basics right and keep on top of everything and you’ll be ok. Take advice and support wherever you can get it and listen to people who have already been successful, and above all, never forget that you are capable of anything if you go about it in the right way. With careful thought and attention to detail you can surprise yourself every day……
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