As a business owner, you can engage bookkeepers, accountants and other advisors to look after your finances, but ultimately the financial responsibility of your business lies with you.
Whether it’s learning the terminology or knowing the difference between a margin and a mark-up, it’s important to have a sound understanding of your business finances.
Good business records also help you to manage your business, meet your tax requirements and make good business decisions. It is a legal requirement to keep records that explain your business transactions. Records must be kept either electronically or on paper for at least five years.
Some records you need to keep for your business tax purposes include income, expenses, and bank records. If you have employees or contractors you will also need to keep tax file number declaration forms, records of wages and allowances, superannuation records, and contracts. Use the ATO Record Keeping Evaluation Tool to help you work out what records you need to keep for your business.
You can choose to keep your records manually or electronically. Manual systems include books or ledger accounts and are often available at your local newsagent or book store. Generally, manual systems will mean more time spent on paperwork. Electronic options include software, web and spreadsheets.
It's necessary to have at least some financial knowledge, regardless of whether you hire someone to manage your finances or you manage your own. Financial skills can help you make the right decisions, and help you discuss your finances with your accountant, advisor, financial institution, the Australian Taxation Office (ATO) and investors.
Some ways you can improve your financial knowledge include:
Training is the best way to take control of your finances. There are a number of free or low-cost training options available to give you the right start, including the Be MoneySmart course.
You might also like to search Event Finder to check if there is a government-funded event, seminar, training course or workshop you can attend in your state or territory.
Learn the terminology
While financial jargon is difficult to avoid, developing your financial knowledge can give you better control over your finances. Learning the terminology can also give you a better understanding of your financial statements, and enable you to ask more specific and often more crucial questions. See the glossary of key financial terms to get started.
There are a number of reasons you may need to seek finance to run your business. These include:
- cash flow fluctuations
- machinery, equipment and tools
- when starting your business
- when growing your business
- when exporting overseas
- research and development
- business survival
Find out more about business finance in your state or territory.
Analyse your finances
Once your finances are in order, your business can be analysed using a number of key financial ratios and calculations. Financial or benchmarking ratios are useful to help identify potential problems with your business. When a ratio appears outside normal benchmarks, you can easily investigate and help stop any further damage from occurring.
Analysis can be undertaken to assess a range of financial indicators for your business, such as sales calculations and profit ratios.
For more information about analysing your finances, including formulas, visit business.gov.au.
Improving your financial position
It is a good idea to get your finances in order before you consider seeking finance. A good first step is to talk to an accountant or business adviser about your financial needs and options – they may be able to suggest other ways of improving your cash flow.
Find out more about improving your financial position.
Getting financial help
While you are responsible for the financial wellbeing of your business, it is important to seek professional advice and services when needed. There are range of professionals that can help you with tasks, such as getting your financial statements in order or providing financial advice about your business.
You might like to consider:
- Accountants – can provide a range of services including preparing financial statements, managing your tax affairs and lodgement, and providing financial and business advice. If you want your accountant to lodge your business activity statement (BAS) on your behalf, check if they are a registered BAS agent.
- Bookkeepers – can record and maintain your day-to-day financial transactions such as banking, chasing up payments and organising staff wages. If they are a registered BAS agent they can also lodge your BAS.
- BAS agents – registered professionals that specialise in providing BAS preparation and lodgement services. To find a registered agent or to check the registration details of a particular agent, you can search the Online BAS Agent Register.
- Financial counsellors – if you are experiencing financial difficulty, a counsellor can help you manage your affairs in the short-term and plan for the future. Find a financial counsellor near you.
- Rural Financial Counselling Service – provides free financial counselling to eligible rural businesses experiencing financial hardship. Counsellors can visit your farm or business and provide you with information and referral services.
- Free Business Advisor visits – some advisory services offer free or low cost advice with finances. Search Advisory Services find for an advisor in your local area.
Managing cash flow
Cash flow is what keeps your business going. It is important to make sure your business has enough cash available at the right time to pay bills and meet your tax and superannuation obligations.
The best way to manage cash flow for your business is to create a cash flow budget. This may assist you to identify potential shortages and take the necessary steps to avoid problems.
Prepare financial reports
It is important to track the financial health of your business through financial reports or statements. Even if your accountant prepares these reports, you should always check them for accuracy. A good way to keep track of your financial situation is to establish a basic bookkeeping system.
Prepare your own financial reports with the following free templates: