|MANAGING DAILY FINANCES
Every day in your business you will be making financial transactions,
such as selling your goods / services and paying expenses. Because of
all this active financial activity, you will need to set up an effective
record keeping system.
It is a legal obligation to keep accurate financial records, in terms of
VAT, tax etc.You will therefore need to set up an accounting system
which covers all of your financial transactions. You can either do this
manually i.e. by hand, or on a computerized package.
If you are starting out small and want to keep your costs down, you may
decide to do your book-keeping yourself. Alternatively, consider
employing the services of a Book-keeper or Accountant, as this can be a
time consuming and complicated activity.
The following are benefits from keeping accurate financial records:-
If you need funding, lenders will
want to see your records.
If you have partners or other
shareholders, they will want regular reports on how the business
If you are going to use an
Accountant, you can reduce costs by handing over accurate and
You will be able to see how your
business is doing and if you are making a profit.
Establishing financial systems
and controls minimize theft and fraud by employees.
Accounting Practices and Procedures
Before you can start managing your day to day financial
transactions, or prepare your monthly or year end financial statements,
you need to understand the basics of Accounting.
Accounting can be defined as:
“The method and processes followed to gather, process and summaries
the financial transactions of a business”.
Key points to remember about accounting
Every transaction must be recorded in the following way:
Sales Journal – used to record all
Cash Sheet – this records cash in and out of your business.
Purchases Journal – used to record all purchases / expenses.
A General Ledger can be kept,
which details all of the journal entries.
This will be used to compile a Trial Balance which details all
the account balances in your General Ledger.
Cash or Accrual?
You need to decide whether you are going to use a cash or accrual system
when setting up your accounting system. This will have an impact on how
your business will report revenues.
This records income and expenses only when it is received or disbursed.
This records income and expenses when the sale or transaction takes
place, not when you receive the money. This gives a more accurate
picture of how your business is performing month on month or year on
year. It is also more effective in converting income to expenses.
Private Companies with income over a certain amount are required to use
the accrual method.
Double Entry Accounting
A basic rule of accounting is the double entry rule of thumb i.e. for
every debit there must be a credit.
A Debit is an increase in assets or a decrease in liabilities /
A Credit is a decrease in assets or an increase in liabilities /
Some people believe in hiding their cash under their mattresses, but in
the business world, you need a much safer way of keeping track of your
money! This is where banking comes in.
Finance is a key factor in your
business and you will need to open and operate a banking account in
order to manage your finances. A bank account is used as a control
measure over cash and it also helps as a record of transactions. You
will not be able to operate your business without opening a bank
Cash, cheques or electronic transfers can be deposited into the account
and payments can be made out of the account.
Opening a Bank Account
Opening up a bank account is fairly easy depending on which type of bank
account you decide on.
Types of accounts
First you will need to decide what type of bank account you want to
open, as there are many different types. Each type has its advantages
and disadvantages, so you must decide according to the needs of your
Credit Card Account
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