Working with money

If you want to make money, you need to know how to work with money. Financial savvy is an important skill for any entrepreneur and business owner, no matter how old you are.
There are a few things you need to know about financial management:

BUDGETING

Every business needs a budget. A budget provides a guideline for your expected income as well as your expenses. It shows you how much you can afford to spend and helps you to plan ahead. A business should have a monthly budget, so that you can compare the forecasted numbers with the actual numbers.

To create a budget, draw up a few columns on a page or spreadsheet on which you list:

You have fixed expenses (things for which you pay the same amount every month), such as rent, loan payments or salaries; and variable expenses, such as your water and electricity bill and supplies, which changes every month.

After a few months of drawing up a budget, you can clearly see how much money comes in, how much you pay for things and how much money you are left with.

This is called budgeting. If your expenses are more than your income, think of ways in which you can adjust your budget. In tough economic times, i.e. after COVID-19, entrepreneurs may look for ways to reduce their expenditures to increase cash flow. Decide which items are not essential to your business and cut those items.

KEEP THE BOOKS BALANCED

Accounting plays a vital role in businesses big and small. It is important to keep a record of all the money that flows into your business, as well as all money that goes out of the business. Maintaining balanced books can help you to financially forecast months into the future and alert you to potential financial gaps.

AS A SMALL BUSINESS, SOME OF YOUR MOST IMPORTANT ACCOUNTS TO KEEP TRACK OF ARE:

• Account Receivable (money customers owe you)
• Accounts Payable (money you owe someone else)
• Sales (your revenue)
• Purchases (supplies)
• Salaries
• Owner’s Equity (The money you and other owners put into the business)
• Retained Earnings (your profits)

MONTHLY FINANCIAL STATEMENTS

Every month, draw up a balance sheet, income statement, and cash-flow statement. This will help you analyse the health of your business. Ask someone to help you, or invest in an accounting software programme.

BALANCE SHEET

A balance sheet depicts your total assets, liabilities and net worth. It offers a quick look into your business’s financial health.

HERE ARE SOME ACCOUNTING TIPS FOR YOUR BUSINESS:

• Record your transactions as they happen. If someone owes you money, you need to update this information the moment that person pays you.
• Save every receipt of every purchase that your business makes. This is concrete evidence of where your money is going.
• Know the difference between invoices and receipts.
• Invoice: An invoice is a bill that’s sent to customers after they received your services. An invoice reminds customers that they owe you money.
• Receipt: A receipt is proof that the customer has paid you. You give this to the customer after a transaction is complete.
• Don’t mix your business and personal finances. When your business is still small, it makes sense to finance the business from your own pocket. But as your business grows, you need to distinguish between the two. Use only your business account for business-related transactions, and your personal account for personal expenses.
• A separate bank account for business needs makes it easy for you to see how money is being spent. If you use your personal account for business purposes, you could be overlooking important business transactions.