Writing a Cash Flow Statement
11th, Mar 2021
When it comes to starting a business, managing finances is the primary part of your business. It plays the pivotal role in understanding whether the business is running smoothly or is on a road with bumps and hurdles. The problem with most businesses, especially start-ups is that they focus on everything but finances when it comes to planning their day to day activities.
Companies create a great marketing strategy, hunt for the best work location and look to purchase their newest office equipment the daily hurdles run at 80 km/h. To top it all, they have confidence that they are smart enough to take care of one of the least important elements (according to them) of business which is managing money. After all, as humans we have been managing their finances all our lives from savings to spending for family’s everyday needs! So, what is the big deal here?
Little do businesses realize that financials are a Tsunami which comes like a wave if not handled in time. Plus business owner’s won’t be in no position to fix it at a later time because back tracking all your expenses will take so much time.
Some businesses owners say that they do prioritize financial planning at every stage in their business. Even if they do not all business owners realize the way it should be done. Misjudging your financials can result in piled up problems for the business as well as the individual, because the CRA expects everything to be done in an orderly fashion. So, what are the common mistakes small businesses often make? Let’s talk about some of the very common ones here:
The most common one is to combine business and personal expenses. In the beginning it might not feel wrong but as you go in the business, you would realize what a mess it was to mix both. Having to audit your bank accounts each month will lead to confusion and uncertainty making it very difficult for you to stay on top of all your expenses. Especially if you haven’t recorded them for months!
So, what is the ideal solution? simple! Open separate chequing account to deposit all business income in it. Keep your records clean so your accountant or bookkeeper can do their job easily and focus on providing you quick turn around making your life much easier.
Make sure to work with an accountant or bookkeeper to create an money management strategy defining how the cash is separated from business to meet personal expenses and maintain savings too which can be used for future investments.
Next is the employees which can be fixed by classifying them in right categories like: Full-time / part-time / temporary/ contractors/ freelancers/ consultants. Make sure that once you classify them that you reach out to the Ministry of Labour and learn the rules around how each class of employoee should be handled.
Another misconception, several businesses have that they consider profits and cash-flow as one while as that is not the case at all. The simple thing to understand is that even when a business has positive cash flow in the short term, it may actually not be yielding any profits! You need to understand that cashflow and profit are two completely separate things. You may have cash coming in but may be losing money in the business.
The ‘I know it all’ method of accounting can land you in big trouble due to the complexity of how money needs to be handled. Easiest way would be hiring services of an expert who can make your life easier while you focus on the core area of your company. In the long run this step is surely going to pay pretty good dividends simply because you would be avoiding many mistakes and saving your time and energy figuring out about what you are not sure of.
Keeping these points in mind, your business is sure to go a long way without stressing you unnecessarily if you let a professional handle it.
I hope this short blog helped you understand a few important reasons why doing your own bookkeeping may not be the smartest decision. Hence, you should definitely speak to a professional to make sure you are doing things properly.
Until next time,
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