One of the essential elements of running a successful company is tracking business finances, which involves keeping tabs on business income and expenses.
A lack of funds is one of the primary reasons why businesses fail. Cash flow is crucial, so companies must manage expenses by recording receipts, payments, or expenses into an accounting ledger.
There are also several benefits of tracking your business finances, including:
- Managing your money more effectively
- Identifying spending issues
- Improving your budgets
- Promoting savings
- Remaining focused on your financial goals
Keeping tabs on your business finances ensures your company grows well to overcome competition. So, how can you implement various strategies to monitor your business finances? By taking the following actions:
Developing A Cash Flow Statement
Creating a cash flow statement is the first and most straightforward way to keep track of your business finances. It’s one of the final accounts and provides information regarding an enterprise’s health. For instance, it offers insights into how cash and cash equivalents change over time. Simply, a cash flow statement shows how money gets in and out of the company.
In addition, a cash flow statement tells you how you get and utilize money. As such, you’ll be able to track your finances. However, you must come up with a comprehensive cash flow statement. In other words, it should comprise three major sections: financing, investing, and operating activities.
One of the best ways to prepare a cash flow statement is to work with experts. However, you can complete the task yourself if you don’t have enough budget to hire a professional. Consider watching online videos and reading blogs on how to make a cash flow statement.
Keeping A Separate Business Bank Account
Another simple but effective strategy for tracking business finances is to open a separate business bank account. Doing so helps separate your personal and business money. As a result, you’ll know how much money gets in and out of your business.
Although separating business and personal bank accounts is necessary for tracking company finances, some business owners still ignore this step. You should avoid this kind of mistake since it could be stressful. For instance, you might struggle to calculate taxes, leading to underpaying or overpaying taxes.
Leveraging The Power Of Accounting Software
Modern technologies form an integral part of running a business. They help streamline operations to save time and other resources. So, consider integrating new technologies into your business systems.
Any company area can benefit from new technologies, and tracking finances is no exception. You can do that by installing accounting software. This application helps store business accounting information in digital form. You can also use it to keep track of business finances.
Utilizing accounting software to track business finances is beneficial since it minimizes errors. Tracking finances manually increases the risks of human error, so you won’t get a clear picture of your company’s position.
One more advantage of utilizing accounting software is it will lower expenses. For example, you can generate payment and expense reports in no time. This eliminates hiring a whole team for financial data entry and analysis. A few staff members will be enough to complement the already installed accounting software. As a consequence, you’ll reduce labor costs.
However, not every accounting software on the market can be suitable for tracking your business finances. You should exercise due diligence to find the right tool for your organization.
For example, a housing association’s accounting and financial reporting needs differ from those required by a retail business.
Accounting software for housing associations will need to include the following:
- Ability to track and manage rent payments.
- Track property-related expenses
- Integrate with bank accounts
- Automation of routine tasks such as invoicing and payment reminders
- Security measures for access
- Audits tracking changes and user activity
Additionally, ensure that you source your accounting software from a reputable vendor.
Connecting All Your Financial Institutions
Managing various bank accounts from different financial institutions isn’t easy. In that case, you can connect your bank accounts by using accounting software.
Connecting your bank accounts lets you manage your finances from a centralized location. Furthermore, it allows you to automatically download and post all your bank transactions to the appropriate ledgers. All this helps you track your business finances more efficiently. For instance, you can account for every payment received or expense incurred by your enterprise.
Using Cash Accounting Or Accrual Accounting Basis
Cash and accrual accounting are both acceded principles in recording payments and expenses. However, for consistency purposes, you should choose one. Before you track your business finances, decide whether to settle for a cash or accrual accounting basis.
With the cash accounting method, you’ll record financial transactions. For instance, you register the payment as income only when received. Likewise, you document expenses once you pay them.
On the other hand, an accrual accounting basis requires you to record income and expenses as soon as they occur. Therefore, you won’t have to wait until you receive money or make payments to register on your books of accounts.
Using either cash or accrual accounting method gives you a complete view of your business, enabling you to easily track finances.
Reviewing Expenses Regularly
Regularly reviewing and categorizing business expenses is an effective way to track your finances. Going over your costs allows you to develop a deeper understanding of your business and find ways to grow it. By reviewing expenses regularly, you can control costs as well. You’ll know how much and what you’re spending your money on. You see these everyday figures as a marker to check whether you’re under or over your monthly budget.
Apart from becoming financially aware of your expenses, you can determine the proper budget, eliminate bad spending habits, and adopt good ones.
Whether you and your team have a small business or a large enterprise, tracking business finances is a surefire way to reach your goals.
Monitoring finances is essential since it’s one of the best ways to promote growth and ensure your company’s success. Hence, if your business isn’t keeping tabs on its expenses, you should start drafting a plan for managing all your business finances today.