One financial year has just ended and another begun. This time of the year is always quite a busy one for business-people like us. In fact, a stressful time — and more if we leave everything for the last hour. Many small business owners see the end of a financial year as just a once-a-year hindrance. As soon as the regulatory requirements are met, they breathe a sigh of relief and hardly bother about financial planning till the next year-end. This is a wrong approach.
First of all I think good financial practice should not just happen at the end of the financial year, but throughout the year. This is crucial to keep your fingertips on the numbers your business is producing, evaluate them on a regular basis, and take appropriate decisions accordingly.
For starters, I would like to recommend here a simple but effective tip -- prepare a checklist of the key financial tasks that you think should be kept track off, and categorize them into groups like weekly, monthly and quarterly items.
For example, your regular weekly reviewable items may include receivables and payable, bank balance and cash-flow update, invoicing, etc. Similarly, the monthly items may include broader issues such as response rate to a marketing campaign, product modification requirements, profit-margin-loss, etc. Finally, in the list of quarterly reviewable items, you may put things like banking relations, outsourcing needs, new funding opportunities, effects of tax on your business, etc.
In addition, I suggest every small business should schedule a routine check-up of some key performance indicators. Measures like Debtor Days (that tells how quickly cash is being collected from debtors), Liquidity Ratio (that measures ability to turn short-term assets into cash to cover debts), Inventory Days (that tells how many days the goods you purchase stay in your warehouse), etc. can tell a lot about the health of a business.
Second, I think sticking to a financial routine can help avoid a lot of stress at the end of a financial year. To prepare financial statements, it is required to undertake a number of tasks, and when monthly accounting -- which basically involves bookkeeping, payroll and tax -- is undertaken, instead of waiting until the end of the financial year, you will not succumb to last-hour pressure, no matter whether later at the year-end you will do the financial accounting yourself or outsource it to an accountant.
And even if you have a full-time accountant, you, as a small business owner, should at least have that much accountancy knowledge that is required to understand what the accounting numbers and ratios tell. An accountant can help navigate arcane accounting and tax rules, but you are the person who can use certain numbers as tools to better manage where the business is headed tomorrow.
Take this new financial year as an opportunity to start afresh and bring more financial discipline in your business.
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