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5 Essential Managerial Finance Tips for Canadian Business Owners

5 Essential Managerial Finance Tips for Canadian Business Owners

Opening a small business is one thing; operating it is quite another.

Monitoring everything from hiring and firing to benefits management to marketing, maintenance, fleet operations, inventory, training and everything in between takes enormous attention to detail.

But whatever your industry, and whatever your trade or service, financial management is at the heart of it all. Without sound managerial accounting and day-to-day bookkeeping, you’re flying blind. It’s impossible to tell how well you’re doing – much less to make course corrections to ensure the profitability and long-term sustainability of your business.

Here are five important managerial finance and bookkeeping tips every business owner should know.

1. Don’t co-mingle business and personal funds.

The first principle of accounting for any new business is to separate the business assets from the personal assets of the owners. If you haven’t done so already, it’s vital to establish and maintain separate business bank accounts, credit accounts, and separate business identity. Otherwise, it is impossible to practice sound financial management. It is also very risky because even though you may think you have protected yourself by setting up a limited liability corporation, commingling business and personal funds could mean that your personal assets could be on the hook for settling any business debts.

2. Establish internal accounting and financial controls.

As a business owner, you’ve got to know where your money is going, and know how it’s being used. This is a critical task for all owners and executives. Employee theft or embezzlement is a common and obvious threat. But without accounting controls, well-meaning but careless or inept managers may overspend or fail to exercise due care with regard to company expenditures.

And that’s your money.

It’s important to establish internal controls, so that you can see what’s coming in and going out of the company, and that no money is spent without authorization. Your accountant can help advise you on best practices for small business financial and accounting controls. Here’s a great resource to get started.

3. Establish a financial operations routine.

The more processes you can do according to a set procedure and schedule, the more you can delegate to good workers, so you can continue to focus on business development, selling and training.

For example, pay all your accounts receivables at once, according to a set cycle. This includes all your freelance contractors, all your suppliers, all your vendors – anyone who sends you an invoice for goods or services provided. Pay all these invoices every Friday, or every other Friday, or on the 1st and 15th of every month. Whatever it is that suits your operations and cash flows. Pick a routine and stick to it.

This helps you focus on your core business operations. And when vendors know what to expect and when they can expect a payment, you won’t have to be constantly responding to reminders and inquiries from collectors.

Just gather all your invoices in one spot, and have someone handle the payments. You’ll go through them in a few minutes – and possibly save hours of hassle.

It also saves on bookkeeping fees, if your operations are streamlined.

4. Have a CAPEX plan

“CAPEX” stands for “capital expenditures.” Capital expenditure is basically any significant investment in equipment or material for your business. It should include cost projections, a timeline, and a plan for putting money aside for these purchases. If you plan to finance these capital purchases, your CAPEX plan should account for those costs, too, including down payments, interest rates and lease or loan payments at a realistic interest rate.

Additionally, your CAPEX plan should also anticipate the eventual obsolescence of your capital equipment. Bought a truck or computer system? Those wear out or become useless over time. You know you’ll have to replace them eventually. Include projected replacement costs on your CAPEX.

Your accountant can show you how Canada’s capital cost allowance system (CCA) can help reduce taxes to free up some cash flow for saving for new equipment.

With a realistic CAPEX plan, you’ll know how much money you need to set aside every week, month and year in order to meet your business objectives.

5. Automate

Automate as much as your accounting processes coupled with a review by a live human to reduce errors as much as possible. When you use the right accounting software to manage your revenues and expenses, there is less chance of items being overlooked. Failing to pay close attention to your accounts receivables can have disastrous results on your business’ bottom line. Accounting software helps you stay on track and notice unusual events when reconciling your bank statements.

Most importantly, automating as many routine functions as possible saves time for you and your staff to focus on your business’s core competencies, and on finding new customers and closing sales.

IMPORTANT: Don’t automate so much that you lose track of what’s going on. Automation can save a lot of time. But use some of that time to inspect financial accounts for accuracy, review payroll for unusual activity, inspect your petty cash, review every cheque on the business account. Compare your cash register receipts to cash on hand, in the safe and deposits. Automation is great, but you need a plan or review process to catch any issues.

Do it at random times, so your employees never know quite when you’re going to be looking. Don’t let employees start “lending” themselves money out of your cash and accounts. You and your accountant should be working together on these processes. But it’s your money! Keep your finger on the pulse of it.

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