Counting Every Penny: Tracking Business Financials
The “Pen, Paper and Shoebox” MethodThe “pen, paper, and shoebox” method is a very basic and informal way that some small business owners use to manage their financial records. With this method, you manually record financial transactions using pen and paper and then store all physical receipts, invoices, customer records, jobs, and other documents in a shoebox (or similar container).
This method isn’t ideal, but for small businesses with very few transactions, this method can be just effective as software. This is most commonly used by businesses who invoice their customers or collect payment on the spot by cash or cheque.
Create a SpreadsheetAnother solution is to create a simple spreadsheet, which can be good option when you’re just starting out, or the business has started out part-time and you’re trying to keep expenses low. If your business becomes more complicated later, you can make the move to an accounting software. Using a spreadsheet allows you to set up your own basic accounting system to track invoicing, make your own calculations, and set up various budgets. Just make sure to give the records to your accountant.
Subscribe to an Accounting SoftwareIf you’re serious about starting a business, it’s probably wise to subscribe to an accounting software (many are free) that links to your bank account. It’s a fool-proof way to document everything you need to collect, and you’ll reduce the risk of errors. Good software will do a lot of the thinking for you, as many platforms have features to generate professional-looking invoices, keep track of who owes you money, remind you when things are due, and help you enter everything accurately for your accountant at tax season.
If you use cloud-based accounting software, you’ll gain increased benefits such as:
- Seeing all your accounts in real-time. The software will link to your bank account, so all you need to do is view your cash position inside the software.
- Increased security as if your computer crashes, your data is backed up in the cloud. If someone steals your laptop, your financial data is safe.
- You can view your financial data anytime, anywhere you have an internet connection and device.
Keeping Track of Your CashWhichever accounting system you decide to go with, good system will allow you to make better decisions based on what is happening in your business now and in the future. It’s important to identify trends that can help you make decisions to grow your business such as:
- Which products and services generate most of your revenue
- Which customers provide the bulk of your sales
- Where your money is going and the highest costs
- Who pays late and needs chasing
- Which products make the best profit margin
Talking to your accountant is an important first step – they’ll have good advice about what system to use, and they’ll want to know it’s one that’s compatible with their own. Contact a small business banker to ensure you’re in the best accounts for your business.