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.
When starting a business you may consider setting up a business bank account to manage your business finances.
If you're operating as a sole trader, you don't have to open a business bank account, but it's a great idea to do so.
If you're operating as a partnership, company or a trust, then you must have a separate bank account for tax purposes.
With a business account, you'll find it easier to:
- track and control your business expenses and income
- extract the information you need to give to your accountant or to do your tax return yourself when tax time comes around.
It also helps to present your business in a more professional manner when dealing with your customers.
Bookkeeping / Accounting
A strong bookkeeping system can help you keep accurate records for a range of purposes. These include analysing business activities, attracting investors, seeking finance, lodging and paying tax, as well as meeting your reporting requirements. Under tax law, you're required to keep records relating to income tax, GST, payments to employees, superannuation, fringe benefits tax, fuel tax credits and business payments.
It can be difficult to set up your own system without a bookkeeping background. If you need help getting started, contact your accountant, bookkeeper or business advisor. Once your system is set up, the right training, effort and discipline can help you take control of your finances.
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 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.
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.
Find definitions for financial terms that you may come across when you are dealing with accountants and financial institutions, or while running your business in the glossary of key financial terms.
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, for example:
- sales calculations
- profit ratios
- liquidity ratios
- finance ratios
- efficiency ratios
For more information about analysing your finances including formulas visit business.gov.au.
Types of finance
Before you decide on a finance option and visit a lender or investor, it's a good idea to see what's available. Two of the main types of finance available include:
- Debt finance - money provided by an external lender, such as a bank, building society or credit union.
- Equity finance - money sourced internally by the business, for example family or friends, private investors or crowd funding.
Applying for finance
Before you approach a lender, broker or investor, make sure both you and your business are in the best position to seek finance. Things to consider:
- Know your limitations
- Shop around
- Dress to impress, present yourself professionally
- Practice your presentation
- Be prepared, find out what information you need to have with you.
- Check the finance details carefully
- If your application is refused, ask for feedback, make changes and potentially overcome the refusal next time.
While you're responsible for the financial wellbeing of your business, it's important to use professional advice and services when needed.
An accountant can provide a range of services including preparing financial statements, managing your tax affairs and lodgement, and providing you with financial and business advice.
Bookkeepers can record and maintain your day-to-day financial transactions. They can also look after your banking, chase up payments, organise staff wages and even prepare your financial statements. However, bookkeepers can't prepare or lodge your Business Activity Statement (BAS) unless they are also a registered BAS agent.
BAS Agents are 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.