Why you don’t need to be a finance wiz to successfully manage your business accounts

Launching your own business is an exciting step in the life of any entrepreneur. But it also comes with challenges and doubts, particularly in areas where founders lack a depth of knowledge or experience. Often, this has less to do with the development and launch of a product or service, but rather the intricacies of managing a business.

Take the financial side, for instance. Often overlooked, making sure that a business’s accounts are in check is a key determinant of its eventual success or failure. While it might seem basic, this is in fact a common problem faced by startup founders. Indeed, while more than 660,000 new businesses are formed in the UK every year, over half will fail within their first five years of launching. And of all the factors contributing to their dissolution, poor cash management was identified by CB Insight as the second most common reason as to why startups fail.

It often boils down to the fact that founders place too much focus on the product they are delivering, and thereby risk overlooking the fundamentals of good business management. Luckily, founders don’t have to go it alone, and can seek help from a number of readily available tech solutions.

As someone who has worked closely with young businesses to develop and implement long-term growth plans, I’ve seen first-hand what they get wrong when it comes to managing finances. Taking these experiences into account, here are but a few accessible software solutions to help startups keep their finances in check…

Managing your expenses

When it comes to running your own business, one common mistake that comes to mind is that many sole traders use their personal bank account for transactions, rather than setting up a new business account. Not only does having a business account make managing finances inherently easier, but some accounts like Coconut now come with simple cost analysis included; which is often more than sufficient to meet the needs of a sole trader.

 And in reality, beyond this initial stage, managing your business finances is a less cumbersome and complicated process than you might think – particularly with the volume of cloud software solutions available on the market.

As a startup, you’ll naturally be dealing with all sorts of expenses and revenue streams, and while it may be tempting to delegate this responsibility to an accounting professional, budget constraints often mean this is out of the question for a lot of entrepreneurs.

Tedious and time-consuming tasks like managing invoices, recording expenses, monitoring outgoings and paying employees can now easily be automated by technology. Moreover, this comes with a number of added advantages.

For one, having all of the company’s financial data hosted on remote servers in the cloud offers a comprehensive overview of things such as receipts, expense claims and card statements. These can also be accessed and updated in real-time by employees from different departments (depending on what kind of permissions are set for different users), which helps improve transparency and the ability to access this information.

Unlike traditional accounting options – such as using programmes on individual computers – software solutions like Xero and Sage One are not restricted by processing and memory limitations. This means that businesses don’t have to worry about the amount of information they can potentially store on these platforms. Even better, cloud-based software solutions automatically update to reflect new accounting rules that businesses should be adhering to, which means that the days of worrying about constantly updating computer programmes are long behind us.

Planning for the future

Besides helping with your cash flow management, using software solutions also makes it easier to plan for the future and make better business decisions. For instance, they enable businesses to plot out what expenses they will face for the foreseeable future and plan what kind of revenue they need to generate to ensure that they are positioned for long-term growth. This can be done through generating financial statements and reports based on all the financial data stored in the cloud.

And as businesses expand, solutions like ZipBooks can also expand to accommodate new responsibilities; many of these solutions allow you to add features and apps to help manage and run different aspects of your business, depending on where you’re looking to make cost saving efficiency gains.

Beyond this, organising all of your data in a software solution means it’s easier to provide investors with a clear and comprehensive overview of your earnings, outgoings, and progress. After all, investors are looking for stable and profitable businesses to invest in, so they will be looking for a good indication of current business strategy, profit margins, and growth prospects.

Making Tax Digital

Leveraging the power of technology is all the more important today given recent policy changes which aim to shift business accounting into the digital world. The first phase of the new HMRC initiative – Making Tax Digital – came into force on 1 April 2019, and will eventually render paper records useless when it comes to meeting the requirements of tax legislation.

While this reform only currently applies to VAT-registered businesses with taxable turnover above £85,000, the move is reflective of a wider government push to digitise business accounting and ultimately make the process more efficient. To keep pace with these changes, small businesses must therefore ensure that they are informed about how they are expected to use software to keep and submit digital records. A comprehensive list of software solutions that have been approved for Making Tax Digital can be found here.

From what we’ve already seen, however, there are a number of software options available to help streamline business accounting and bookkeeping, regardless of the level of experience in this area. Ultimately, these handle day-to-day responsibilities and leave businesses time to focus on their core proposition.