Twitter
Facebook

Accounting And Bookkeeping Software For A Home Based Business

Many home business start ups do not become successful because they are missing the required financial systems to keep track of their finances and cashflows. It is very common for home based business owners who do not like the idea of keeping their own accounting records, to think that as long as money keeps coming in, their business will be alright.

However, it is not really that simple when you are engaged in business.

If your goal is to stay in business for a long time, you will need to understand your cashflow and financial situation for a number of reasons. (I am not pointing these out to scare you but to make you aware so that you do not make these common mistakes!)

Cashflow

This is critical to the running of a business. Without cash your business can fail, no matter how much profit you are making on paper. Cash is King. If you run out of cash, your creditors may take you to court to obtain payment or even try to have your business liquidated.

Taxes

As one of the few things in life which are certain, taxes are very important to any business as failure to comply can result in serious penalties and even the loss of your business.

Therefore you must keep track of all of your income and expenses whilst ensuring that the relevant tax entries are correctly made.

Reporting

You will need to produce reports for a number of reasons. Depending on the status of your business, varying types of reports and submissions will need to be made to the relevant authorities. Examples are an annual profit and loss statement, balance sheet and cashflow. If you are operating on a self employed basis, you will still need to make annual returns, though not as onerous as for a corporation.

Controlling your business

One of the best techniques used to control a business is by use of the financial data.  Your monthly reports tell you how well (or badly!) your business has performed and it can highlight the areas where improvement is required. It can flag up certain indicators that all is not well. Things to look for are:

  • Turnover – was it high enough?
  • Profit margins – are they within range?
  • Overheads – are your costs under control?
  • Net profit – Are you actually making any profit?

 

This is best done by comparison to a budget or forecast. Most larger organisations prepare budgets for the next financial year and these act as a goal or business plan. You then compare the actual results to the forecast to see how your business is performing and to make any necessary adjustments if it is not.

Hopefully by now you understand the importance of having a good accounting system.

Setting this up does not have to be complicated. We are in the digital age and computers make bookkeeping a whole lot easier than the days of vast ledgers of written records!

Before choosing accounting software, your should read my previous article on “Small Business Accounting Software” as this will help you know what features you should be looking for in relation to your own unique business.

If you have a very small business with few clients and little paperwork, you could simply use a spreadsheet to keep a track of things. (I personally do this on a home based business that I operate on a self-employed basis and it works just fine).

However, one advantage of using accounting software programs is that they will be balancing your books of accounts for you, taking away a potential headache!  

All you have to do is input the data in one page and the program will take care of everything else. The majority of accounting software programs will automatically perform the required accounting process and will immediately update your statements of accounts. Retrieving your data from an accounting program is also easy. The financial reports your business is likely to require can usually be generated by the software (Check this before purchase!)

This gives you such a huge saving of time that the software will pay for itself many times over!




Comments are closed.