With the busy tax period behind us and the calendar year quickly approaching an end, you may have noticed we’ve put a pause on our regular tax tips and have shone the spotlight on a new theme across our social media channels – “Spring Clean Your Finances”. We’re sharing a new tip each week throughout Spring, so if you haven’t followed us on Instagram and Facebook yet, it’s a great time to join us! (Insider tip: We also have a little competition coming up on our social media pages over the coming months, which we don’t want you to miss!)
As part of this new theme, later in the season we’ll be sharing some BONUS content with our social media followers, aimed at helping them to get their business “house” in order. However, as one of our valued subscribers, we wanted you to have this bonus content first (a little perk for allowing us into your inbox every couple of months).
As the year nears its end, naturally we’re all in a bit of a frenzy right now attempting to tick as many things as possible of our to-do lists. But if you’re lucky enough to have some downtime after the end of year rush, you might like to spend some time getting your business basics right.
These 5 tips are a great place to start!
1. Review your chart of accounts
All bookkeeping software contains what we call ‘Chart of Accounts’. This is the list of possible places to code transactions to. It’s good practice to regularly review these and find ways to optimise how you’re categorising data.
a) It may be beneficial to split accounts into more categories.
Example: you might have one account called ‘Motor Vehicle expense’ but by adding sub-accounts for fuel, insurance, etc, you’re able to dig deeper into your information and make better decisions.
b) Your accounts may need re-classifying.
Example: if you have some Cost of Sales or Direct Expenses accounts classified as expenses, you might not be able to accurately identify your profit margins. By reclassifying the reports your run will offer better information.
For more information on Chart of Accounts, visit:
https://central.xero.com/s/article/Chart-of-accounts-in-Xero
2. Use Xero Tracking categories
Xero allows you to create and track two categories. By setting this up, you’re able to better categorise transactions and drill down into reports further.
a) Some thought should be given to the categories that may be relevant to your business. The possibilities are endless, but you can only have two categories.
Example 1: If you run a fleet of vehicles, you might set a category for vehicles (with each vehicle listed as an option). When you code expenses, you’d allocate to the relevant vehicle and then you’ll be able to run a profit and loss by vehicle.
Example 2: If you have a multi-shop front, you might set a category for location. You’ll then be able to code income and expenses by store and run a profit and loss for each location.
For more information on Tracking Categories, visit:
https://central.xero.com/s/article/Set-up-tracking-categories-AU
3. Input your business budget into xero
Xero allows you to enter your business budget into the Budget Manager.
a) Like personal budgeting, the act of business budgeting can be helpful to ensure you set goals, but also think about the requirements of your business.
Example: if you run a service-based business and have some growth goals, you’re likely going to need extra labour resources to deliver the additional sales.
b) Once you have a budget in xero, you’re able to run reports of your actuals to budget so that you can review how you’re progressing.
For more information on Budget Manager, visit:
https://central.xero.com/s/article/Create-a-budget
4. Customise reports in Xero so you can get the information you need quickly
If you’re finding that the default xero reports don’t quite meet your needs, you can customise the reports for your business.
a) This could involve grouping accounts together so that you can quickly get a total.
Example: you might group all your office overheads or employment costs so that they give you a total.
b) You can add columns to compare one period to another, or budget to actual.
c) You can set up tracking category reports.
d) You can add formulas so that you can get key metrics quickly.
For more information on Custom Reports, visit:
https://central.xero.com/s/article/Create-reusable-custom-report-layouts#Howcustomreportswork
5. Get a handle on where your cash is going
It’s common for business owners to wonder where their cash is going, particularly when reports are saying you’re making a profit, but you just aren’t seeing it in your bank account.
Often the answer is in your Balance Sheet.
We’ve put together a Cash Control Toolkit to help you identify where your cash is flowing, plan for the cash requirements of your business and set some goals for growth.
You can download a free copy here:
https://lemonadebeachaccounting.com.au/cash-control-toolkit/
