Here are six steps you can take to sort out your business finances and ensure that you are on top of your game.
1. Separate Your Business and Personal Bank Accounts
The first step to sorting out your business finances is to separate your business and personal bank accounts. By doing this you can keep track of your business transactions separately from your personal expenses. This can help you get a clearer picture of your business's financial health and make it easier to manage your finances without having your food bill or mortgage payment get in the way.
If you’re running a Limited company, there is no way around this - it’s a separate legal entity and needs to have its own bank account.
2. Set Up a Bank Feed
Sign up for Xero and add your business bank account as a bank feed. This will bring in your transactions every day into Xero. If you haven't been doing this since the beginning of your accounting year, backdate your bank feed start date. For example, if your year runs from 1 July to 30 June, start the feed from 1 July 22 and work hard to bring the bookkeeping up-to-date as quickly as possible.
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3. Use all of the features in Xero
Xero is a hugely powerful tool. Yes, on the surface it makes invoicing straightforward and helps you keep digital records of your purchases. But it can do so much more. Utilising the likes of automatic payment chasing and payment services you can begin to streamline your Accounts Receivable process (which brings cash into the bank quicker). It’s also likely to be able to integrate with your CRM (if it can’t you can utilise Zapier to force it to) which means you can set up automation and streamlining of other processes like client onboarding and invoicing.
4. Reconcile Your Bank Feed
Reconcile your bank feed against the transactions you've entered into the software. Do this monthly at least. If you’re using automation to chase outstanding invoices you’ll want to reconcile your invoices daily to make sure customers aren’t being chased for invoices they’ve already paid.
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5. Review Your Reports
Once everything is up-to-date for a month, take a look at the Profit and Loss and Balance Sheet reports. The Profit and Loss shows your Sales Income and Expenses. The Balance Sheet shows what the company owes and owns at any point in time. Understanding these reports is crucial.
6. Get Help
Engage an accountant that's going to work with you moving forward. Do not go with an accountant that will only offer your year-end compliance and talk to you once a year. Instead, engage one that will give you the information you need, when you need it.
If you're at Step 6, give us a shout. We help digital agencies and freelancers understand their finances with regular, clear, and concise communication.
If you're not ready to join our community, download our Profit Maximiser workbook here.
Sorting out your business finances may take some effort, but it is well worth it. By following these six steps, you'll be on your way to financial success.