As a company director, it’s vital to master key financial practices so you can ensure the successful operations of your business. By getting into the habit of doing the following activities at the end of each month, you will be able to maintain clarity of your company’s financial health.
Managing Debtors
Effectively managing debtors is essential for sustaining cash flow. Debtors are customers who have yet to pay their invoices. Here are steps to ensure you stay on top of this:
Monthly Investigation: Dedicate 10 to 30 minutes each month to thoroughly investigate your debtors list from your accounting system. A proficient bookkeeper can help streamline this process.
Ensure Timely Payments: Verify that all invoices have been sent to the correct email addresses and have been processed.
Automate and Follow Up: Consider using automated reminders for overdue invoices and implement a system to log follow-up calls to understand why payments are delayed.
Simplify Payments: Make it easy for customers to pay you—set up direct debits or include 'pay now' links on your invoices.
Establish Clear Terms: Communicate your payment terms clearly to avoid misunderstandings and late payments.
Cash Flow Importance: Remember, a steady cash flow means a more successful business. Ensure your payment terms and invoicing methods are optimised to get payments into your bank account promptly.
Keeping Track of Creditors
Creditors are your suppliers who provide goods or services on credit. Managing them effectively is key:
Detailed Review: Allocate substantial time each month for a detailed review of your creditors list, ideally with your bookkeeper.
Accurate Records: Ensure all supplier invoices are correctly entered in your accounting system with the appropriate due dates.
Reconciling Statements: Regularly reconcile supplier statements with your records to catch duplicates or missing invoices.
Communication: Maintain open communication with your suppliers to foster healthy relationships and ensure you never miss a payment due date.
Efficient Systems: Use accounting software integrated with payment systems to manage and schedule payments efficiently.
Bank Account Reconciliations
Regularly reconciling your bank accounts is essential for maintaining an accurate financial picture:
Monthly Reconciliation: Verify that all transactions in your bank accounts are reflected in your accounting system. A skilled bookkeeper can be invaluable here.
Match Invoices and Payments: Ensure incoming transactions are matched to sales invoices and outgoing transactions to purchase invoices.
Payroll and Other Accounts: Make sure payroll payments, including deductions and contributions, are accurately reflected in your accounts.
Categorise Expenses: Properly categorise all bank charges, payment fees, and interest charges to maintain accurate financial records.
Reviewing Profit and Loss Statements
Your Profit and Loss (P&L) statement reveals your financial performance each month:
Accrual Accounting: Use accrual accounting to allocate income and expenses to the correct accounting periods.
Monthly Adjustments: Make necessary monthly adjustments for income received in advance, accrued income, expenses made in advance, and accrued expenses.
Performance Analysis: Regularly compare your P&L statement against your budget to track the financial performance of your business. A bookkeeper can provide valuable insights here.
Gross vs. Net Profit: Understand the difference between gross profit (sales less direct expenses) and net profit (gross profit less overheads) to ensure your business remains profitable.
Balance Sheet Review
A monthly balance sheet review provides a snapshot of your company’s financial position:
Assets and Liabilities: Know what your company owns (assets) and owes (liabilities), and ensure they are accurately reflected.
Equity Calculation: Your equity is the difference between your assets and liabilities; keeping this positive is crucial for financial health.
Cash Flow Forecast: Create a cash flow forecast to monitor cash inflows and outflows, ensuring you can meet your financial obligations. A capable bookkeeper can help with accurate forecasting.
Clearing Accounts: Monitor and reconcile clearing accounts regularly to ensure accurate cash position reporting.
Strengthening Your Financial Practices with a Bookkeeper
By focusing on these five areas each month, you can ensure your business remains financially healthy, maintains accurate records, and improves cash flow management. A skilled bookkeeper can assist you in staying proactive, keeping your records updated, and leveraging automation and communication to streamline your financial processes.
Are you a company director navigating the complexities of month-end financial management?
Don't worry, we've got you covered! Download our FREE guide: '5 Things Every Company Director Needs to Know at Month End' and gain the insights you need to streamline your month-end processes and drive business success.
You can also check out our YouTube series where our Founder, Kath Vincent, breaks down each topic in-depth.
Long White Cloud Accounting is based in Sutton, South London and serves established limited company service-based clients in the Greater London area. Led by Kath Vincent, we provide high-quality bookkeeping to keep you on top of what’s happening in your business each month. Looking for bookkeeping support? Click below to book a chat with Kath.
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