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Heads up business owners – if you want to have a profitable biz (we all do, obvs), then you have to take an interest in your business’s finances and get familiar with the numbers. Yeah, we know, financial terms like “cash flows”, “VAT returns” and “income statements” sound complicated, and tasks like preparing year-end tax can be daunting, but having insight into the bookkeeping of your business is important.
So, let’s take a big breath and jump right in. Just so you know – it’s not actually that scary. You’ll quickly get the hang of it with this advice from a pro. Here, Ilhaam Smith, owner of Fin Source Consulting, shares her top three tips to manage your bookkeeping like a boss…
1/ First, separate business and pleasure
The first rule of effectively managing your business finances: separate them from your personal finances, explains Ilhaam. “By doing this, you will avoid the frustration of trying to reconcile bank statements. It will be more clear to you and SARS what your business is earning [and] spending, and then what your bottom line net profit is,” she says. “Registered companies open themselves up to legal problems when their finances aren’t separate from personal transactions – and can become personally liable.” Point taken!
2/ Choose a method of accounting
There are two methods of accounting: cash or accrual.
1/ Cash basis: You only recognise revenue when you receive it and recognise expenses once you make the payment, eg: when the money hits the bank account or leaves the bank account.
2/ Accrual basis: Revenue and expenses are recognised when the transaction occurs (even if the cash isn’t in or out of the bank yet). You recognise the purchase once you receive the invoice and receive the goods – not only when you make payment.
“If you are a small business and just getting started, you can probably use the cash method – it’s easy to switch from cash to accrual if you need to,” explains Ilhaam. “If your business is more complex, you would use the accrual basis, but either way you should talk to your accountant to figure out which method will be best for your business,” she says.
3/ Select a bookkeeping system
You can do your bookkeeping manually using Google Sheets or Microsoft Excel, or use an accounting software platform. If you choose Sheets or Excel, then all you have to do is enter each transaction as it happens. “If your bookkeeping needs are straightforward, this is the easiest and cheapest way to go,” she says.
Ilhaam does, however, recommend using accounting software. “I’d suggest Xero,” she says. “Xero’s online accounting software lives in the cloud. That means you can automate everyday business tasks, get up-to-date financials and run your business from wherever you are. You will pay a monthly fee for the software, which you can use to produce simple financial reports,” says Ilhaam.
For a complete seven-step guide helping you to successfully manage your own bookkeeping, download the Fin Source Consulting complimentary guide here.