Good Financial Management

Understanding how well your business is performing financially is important. You will need systems to help you monitor your financial situation, manage your money and measure the success of the business. These systems need not be complex. You may want to establish budgets for anticipated spending in key areas, for example, labour and materials. These budgets will normally be for a period of 12 months ahead. Measuring your actual spending against these budgets as you go along is a good means of controlling your finances.

On a quarterly basis you may want to prepare a set of interim accounts to help you see the true financial position of your business. These accounts will include a profit and loss account to show how the business has performed over the period and a balance sheet showing the assets and liabilities of the business at that time. Producing these statements is relatively straightforward if you are using a computerised accounting package, but you may need the help of an accountant.

Another means of keeping a tight control over your cash is to do a monthly bank reconciliation. Your business will probably receive a monthly bank statement but the balance shown in your account on the statement will be misleading since it will not take into account cheques written or money lodged which has not yet been cleared. If you do a bank reconciliation exercise you will find out the actual balance in your account.