By Hadrian Pereira
Bookkeeping and paperwork are a valuable but time-consuming exercise that every business owner needs to manage to run their business. Small business owners outsource their finance function to an external bookkeeper, others hire an internal staff member to manage this, and others spend after hours or their weekends organising documents for their business.
Tool 3 to good financial hygiene is to leverage the right tools to run your finance function. These include
- Adopting a cloud-based accounting ledger
- Having a budget
- Using reports
Cloud based accounting ledger
Business owners, CFOs and finance teams have always wanted to make timely decisions or create scenarios to forecast the future. The challenge they faced was that it was a manual process to load data into their desktop or server-based accounting package, for it to then be cross checked and reviewed before producing a simple report or insights.
Today cloud accounting is the way business is conducted, not only for accountants and advisors but also for the non-finance savvy business owners. If you don’t have a cloud-based ledger we highly recommend considering it and it’s functions:
- Automated bank feeds – downloads bank account transactions for processing, no need to manually upload transactions or statements
- Automated transaction matching – using AI the accounting ledgers can match invoices in the system and even suggested accounts to code transactions to based on prior reconciliations
- Optical character reader tools that extract data from documents and populate supplier invoices in the ledger, eliminating the need for someone to manually enter these in.
- Document storage – being able to store receipts next to the transaction, improving record keeping and digital backups of the transaction
- Real time view – work with your accountant or advisor at the same time, so you both are on the same page.
Budgets
Budgets are an essential tool that helps businesses plan and control their finances. They provide a detailed forecast of income and expenses over a specific period, allowing businesses to allocate resources efficiently and place metrics around some of the financial aspect of their business in line with the business plan.
Each year we all make New Years Resolutions, some are aspirational, others are a simple goal we want to achieve. Once the year gets under way our focus on these resolutions deteriorates and we somewhat come close or fall off track in line with budget. This is a very similar analogy that can be applied in business where budgets seem to be set and forget.
Effective budgeting involves regular monitoring and adjustments to ensure that financial targets are met and any discrepancies are addressed promptly.
Budget setting process:
By keeping a close eye on budgets, businesses can better manage their cash flow, reduce unnecessary expenditures, and enhance overall profitability by identifying periods of peaks and troughs that will deliver opportunities.
Reports
Reports in a business inform any owner or stakeholder with the performance of their staff (People), Business and their Clients. It brings accountability, transparency and a narrative on the financial result.
Most business owners rely on a Profit and Loss to say how they are performing, or sometimes how much cash is in the bank. However, forming a structured reporting pack that goes beyond a simple profit and loss report will enable business owners to pivot and be agile in their decision making. A typical reporting back could include the following reports:
- Detailed Profit and Loss compared to Actual to Budget including Forecasted YTD results
- Balance sheet results comparing past 3 months
- Cashflow forecast
- KPI reporting on financial and non-financial metrics
One of the old adages that holds true is what matters is measured.
The Next Powerful Tool
Once you have laid the foundation of your business with the right finance tools it is important to then review your technology architecture to understand how your operating ecosystem seamlessly works together.
Contact us to find out more about achieving best practice with your finance tools!
