Running a successful business in Nigeria is most times challenging due to myriad of problems. It’s even more difficult if you are just starting your business, or operating a seasonal business. Apart from the operational and customer issues that inevitably eat up your time, you also need to know where you stand financially.
As good as you may be at running your business, you might not be as interested in putting together a budget. But experts say getting your numbers right may very well make or break your business.
Equally important for your business is the fact that various deductions, and income classifications may also be changing as the year goes by.
However, successful entrepreneurs invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance.
Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.
In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow and profit. Converting this into a cohesive process to manage your business development doesn’t have to be difficult or time-consuming.
The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. Bookkeeping is one of the most effective ways to control your cashflow, and allowing you to invest in new opportunities at the appropriate time.
Experts say bookkeeping is a vital tool in ensuring that you stay in control of your expenditure. For many small businesses, the most common bookkeeping errors are also the easiest to fix. Use these six tips to help keep your business on sound financial footing.
Use the right accounting system:
Most businesses use either cash-based or accrual-based accounting. If you use the cash method, you count income when you receive it and expenses when you pay them.
Under the accrual method, you count income and expenses when they happen, not when you actually receive or pay them. In practical terms, this difference, according to an Accountant, Mr Sesan Yinka, is relevant if your company keeps inventory on hand or handles transactions on credit.
He says “The accrual method of accounting might be a better choice for your business.
“And in fact, if your firm has more than N5m in sales or keeps an inventory, it will be preferable that you use the accrual system. In other cases, however, the simpler cash system could be all you need.”
Maintain daily records:
Financial accountants describe this as one of the basic rules in bookkeeping. They say a firm that lacks accurate daily records, will not have an accurate way to track the financial condition of such business. Yinka says, “Different people use different record-keeping systems; what matters is that you have one and use it every day.
“Once you have a good system set up, accurate record keeping will take just a few minutes a day.”
Handle and review cheques carefully:
It’s easy to be on auto-pilot when you are writing cheques and tossing cancelled ones into a filing cabinet without reviewing them. Remember that those cheques are as good as cash. And if something goes wrong, you and not the bank will be on the hook. Take the same care with cheques as you would with cash.
Another Accountant, Mr Adeez Balogun, says that cheques should be signed using a clear, distinctive signature that won’t invite forgery.
He says, “Review cancelled cheques before anyone else, including your book-keeper or employees, see them because this can make you cash unauthorised cheques.
If your business is a partnership, it’s a good idea to have at least one of the partners co-sign the cheques.”
Get a bank statement with a month-end cut off:
This is another basic tip that can reap big rewards. Synchronising your bank statement with other monthly records will make it much easier to reconcile your statement and track expenses.
Leave an audit trail:
Your record keeping will be much more effective if you have a system that allows you to quickly and easily retrace your company’s financial activities.
This means keeping your invoices and cheques in numeric order, not skipping cheques or invoice numbers, and keeping separate bank accounts for your business and personal funds.
If you can’t go back a year and reconstruct your company’s finances, you probably are not leaving an effective audit trail.
Use a computer:
Computer bookkeeping software is absolutely essential for all but the smallest businesses. These applications make it easy to track income and expenses, prepare tax documents, summarise your company’s financial activities and back up records for safekeeping. If you are working with an outside bookkeeper, make sure he or she knows how to use a computer.