If you want to succeed in business, you need to know about financial management. No matter what your field of expertise are the money you make will quickly disappear if you don’t know how to manage it correctly. Poor or bad financial management is one of the main reasons for poor cash flow problems. and/or bankruptcy.
Failure can be avoided if sound financial principals are adhered to in all areas of your business. It is for this reason that using an accountant who not only understands your business but also is able to ensure you receive financial guidance at regular intervals (at least quarterly or more often).
It is extremely important to understand the basic principles and how they will aid you in all your business decisions.
One of the most important tools is financial analysis. Accurate financial records will provide answers to some important questions such as:
- Are you making money, or losing it? How much?
- Is your business on sound financial ground?
- Is financial trouble lurking ahead?
A sound bookkeeping system is the foundation on which all of this valuable financial information can be built.
Most small business owners rely on an outside accountant to do their financial statements; payroll and taxes. Finding the right accountant is an essential element of monitoring and managing the financial well-being of your business. Having an expert third-party review your records means you’ll be alerted to problems with your recordkeeping or other problems which may occur.
Importance of Good Record Keeping
Most business owners spend a large part of the time in money making activates and often neglecting their financial aspect of their business. However, if you are going to run a successful business, accurate and timely financial information is a must.
Some of the reasons why you need a good financial recordkeeping system are:
Monitoring the success or failure of your business.
It’s hard to know the financial health of your business without a clear financial picture:
- Are sales increasing?
- Are your reaching your share of the market?
- Are you targeting the right market?
- Are expenditures increasing faster than sales?
- Which expenses are too high based on my level of sales?
- Do some expenditures appear to be “out of control?”
- Is there any stock shrinkage and if so where and why?
Providing the information you need to make decisions.
Evaluating the financial consequences should be a part of every business decision you make. Without accurate records and financial information, it is extremely difficult to know the financial impact of a given course of action .e.g.
- What are the cost impacts of hiring additional staff?
- How much does it cost to manufacture an item?
- Is this particular product line profitable?
- Are you getting the most benefit per square meter of production space or office space?
Financing assets or future growth.
The Bank will usually want to see the following financial statements for:
- a balance sheet (prior and current financial year)
- income statement (prior and current financial year),
- cash flow forecast (for the next 12 months) this must include the impact of the funding required
- budget (for the next 12 months)
A banker may even want to see some of your bookkeeping procedures and documents to verify whether you run your business in a sound, professional manner.
Obtaining other sources of capital.
If your business has reached the point where you need to take in a partner or shareholders, they will want to become intimately familiar with your financial picture. If you need capital and are thinking of taking in an outside investor, you will need to produce a lot of financial information. Even your suppliers and other creditors may ask to see certain financial statements.
All businesses should use a budget for planning purposes. A budget will help keep your business focused on their goals and objectives by forecasting your cash needs. While providing and measuring rod for your current expenditures. You will need to a good solid financial information to prepare a meaningful budget.
Preparing your income tax return.
All business is must file an income tax return and pay income taxes. This in one of the reasons why accurate records need to be keep and up to date. This will also make preparing an accurate tax return will be easier and do it on time. Poor records may result in your underpaying or overpaying your taxes and/or filing late (and paying penalties). Not good order for your accountant to prepare your income tax return, will certainly result in your paying higher accounting fees.
Submitting VAT returns.
If you are a registered VAT vender you are obliged to ensure that you comply with SARS’ strict Vat Act:
- Account for output tax on all your supplies
- Complete and submit VAT returns regularly, usually every second month as shown on your Vat certificate issued by SARS.
- Keep proper accounting records for inspection for a period of 15 years.
- Issue invoices with the words “Tax Invoices” clearly stated on each invoice
If your client asks for a second copy of the same invoice the words “Copy Tax Invoice” must be used.
- Pay VAT on the value of all your business assets on de-registration as a VAT vender.
- Charge VAT on the sale of your business and all goods sold (even assets) that you sell.
Should you fail to keep proper accounting records SARS may refuse your registration or force you to de-register and you will no longer be allowed to claim your input tax or charge your customers tax.
- If you fail to register and your turnover exceeds R1,000 000.00 per annum you will be liable for the VAT on your turnover, even if you have not charged this together with interest and penalties. You could also face prosecution.
- Complete and submit VAT returns no later than the 25th or last working day before the 25th if on a Saturday; Sunday or Public Holiday) following the month in which the VAT cycle is completed.
- Purchases under R50 – no invoice required
- Purchases R51 – R1000, invoice stating
- TAX INVOICE
- VAT Reg Number
- Invoice Number
- Supplier name.
- Purchases over R1000
- Tax Invoice,
- VAT Reg. No.
- Invoice Number
- Suppliers and purchases name,
- as well as both suppliers postal address and contact numbers
Submitting PAYE, SDL, UIF and Workman’s Compensation returns
As an employer you will be required keep payroll records and submitted returns timeously to SARS, the Department of Labour and other registered council bodies your industry may require you to registered with for example Metal Workers Industries etc.
If your enterprise is trading as a partnership, Close Corporation, Private or Public Company you will need good records to determine the correct amount of profits to distribute to each shareholder or member. If you are operating as a corporation, you must determine the company profits that you will be paying out as dividends to the shareholders.
Getting Your Records Ready
You can save yourself money by doing a lot of the preparation work for your accountant as possible. For example you can neat file all your invoices in month order and where possible in expense types. While ensuring that all the information, e.g. date and amount is clearly legible. Get your records ready and set up an appointment with your accountant as early as you can. Don’t wait until you are close to an upcoming deadline. If you get your records to your accountant early, he or she will give you better service for your money.
Too many people wait until the last minute—don’t be one of them, their time costs you money.
Jean Barboure (ACIS)
Chartered Secretary and Tax Practitioner
Member no: 3003499
Tax Practitioner no: PR40CFBD7