Manage your finances
Accounting for revenue and expenses can help keep your business running smoothly. Make sure you maintain proper bookkeeping and have a basic knowledge of business finances.
Content
- Start with a balance sheet
- Pick a method of accounting
- Get accounting help
- Manage business credit
Start with a balance sheet
The balance sheet is the foundation of managing your finances. It operates as a snapshot of your business financials. It helps you keep track of your capital and provide a cash flow projection for future years.
A balance sheet will help you account for costs like employees and supplies. It will also help you track assets, liabilities, and equity. You can get insights by separating and analyzing segments of your business, like comparing online sales to face-to-face sales.
Cost-benefit analysis (CBA)
Looking closely at money-in and money-out helps maintain a sustainable balance between profit and loss. From development and operations to recurring and nonrecurring costs, it’s important to categorize expenses in your balance sheet. Then, you can use a cost-benefit analysis to weigh the strengths and weaknesses of a business decision, and put potential recurring benefits and cost reductions in context.
A CBA is a technique for making non-critical choices in a relatively quick and easy way. It simply involves adding money in benefits and money in costs over a specified time period, before subtracting costs from benefits to determine success in terms of dollars. This can come in handy with hiring another employee or an independent contractor.
For example, let’s say you’re deciding whether to add a new machine for your bread factory. You estimate the machine would add GHC5,000 in extra profit from sales each year. But, the machine permit costs GHC1,000 each year, and you’d also have to spend GHC2,000 to buy the machine. Your cost-benefit analysis shows that you should add the new machine, because the new benefits (GHC5,000 in new sales) outweigh the new costs (GHC3,000 in permitting and equipment expenses).
Pick a method of accounting
Businesses often use either the accrual or cash methods of recording purchases. The accrual method puts transactions on the books immediately upon completing the sale. The cash method only records this once payment has been received.
For example, if you make a sale in January and receive the GHC200 payment in February, an accrual method would allow you to record that on January’s books, while the cash method would require that payment to land on February’s books.
| Method | Pros | Cons |
|---|---|---|
|
Accrual
|
Creates immediate snapshot. Can reduce tax burden. |
More complex to manage. Potentially deceiving figures. |
|
Cash
|
Shows cash flow clearly. Easier to understand. |
Limits predictive value. Less long-term clarity. |
GAAP
There are many strategies for preparing financial statements for a small business. Generally accepted accounting principles, known as GAAP or “Gap,” provides a common a way to standardize financial reporting using the accrual method. Private companies aren’t required to follow GAAP. The Financial Accounting Standards Board (FASB) maintains GAAP in the United States.
Get accounting help
You might want to get help with your accounting. Consider hiring a certified public accountant (CPA), bookkeeper, or using an online service.
A CPA will typically cost more than online services, but can normally offer more tailored service for your specific business needs. A bookkeeper can provide basic day-to-day functions at a lower cost, but won’t possess the formal accounting education of a CPA.
Ensure that someone can manage the following:
- Accounts receivable
- Accounts payable
- Available cash
- Bank reconciliation
- Payroll
Manage business credit
Establishing and managing business credit can help your company secure financing when you need it, and with better terms. Business credit can be crucial for negotiating supply agreements and protecting against business identity theft.
These five steps can lay the groundwork to sound financial planning.
- Determine whether you have business credit on file with Dun & Bradstreet
- Establish a business credit history by using lines of credit associated with your business
- Pay bills on time and understand other factors that influence your credit rating
- Keep your credit files current and monitor for ratings changes
- Know your customers’ and vendors’ credit standing
Knowing your customers’ credit standing gives you a window into consumer patterns, and that can affect your marketing and sales strategy. You may not need to conduct credit checks, but there are credit evaluation tools available for small business. Customer behavior also impacts your business’s cash flow, which affects planning for future supplies, hiring employees, and expanding your business.
Hire and manage employees
Establish a basic payroll structure to help you hire employees. Then, manage employees properly with a general understanding of national labor laws.
Content
- Hire and pay employees
- Employees and independent contractors
- Plan to offer employee benefits
- Follow labor laws
Hire and pay employees
Before finding the right person for the job, you’ll need to create a plan for paying employees. Follow these steps to set up payroll:
- Get an Employer Identification Number (EIN)
- Find out whether you need tax IDs from the GRA
- Decide if you want independent contractors or employees
- Ensure new employees return a completed Social Security form
- Schedule pay periods to coordinate tax withholding for GRA
- Create a compensation plan for holiday, vacation and leave
- Choose an in-house or external service for administering payroll
- Decide who will manage your payroll system
- Know which records must stay on file and for how long
- Report payroll taxes as needed on quarterly and annual basis
The GRA maintains the Employer’s Tax Guide, which provides guidance on all tax filing requirements that could apply to the obligations for your small business. Check with the nearest GRA office for employer filing stipulations.
Employees and independent contractors
Distinguishing between employees and independent contractors can impact your bottom line, as this affects how you withhold taxes and avoid costly legal consequences. Learn the differences before hiring your first employee.
An independent contractor operates under a separate business name from your company and invoices for work completed. Independent contractors can sometimes qualify as employees in a legal sense.
Plan to offer employee benefits
Healthcare and other benefits play a significant role in hiring and retaining employees. Some employee benefits are required by law, but others are optional.
Required employee benefits
- Social Security taxes
- Workers’ Compensation
- Leave benefits
Optional employee benefits
Your small businesses can offer a complete range of optional benefits to help attract and retain employees. Even if a benefit you offer is optional, it might still have to comply with certain laws if you choose to offer it.
Retirement plans are a very popular employee benefit. Consider offering an employer-sponsored plan or a pension plan.
Employee incentive programs
Employee incentive programs can boost morale and create more draw for open positions: Common incentives such as stock options, flex time, wellness programs, corporate memberships and company events.
Consider benefits administration software if your budget allows. It can make your accounting easier and more efficient. Detailing these benefits in the employee handbook helps your staff make decisions, and they can use it as a reference for workplace requirements.
Follow national labor laws
Protect workers’ rights and your business by adhering to labor laws, which means you must ensure that business practices align with industry regulations.
Pay taxes
Your business will need to meet its tax obligations to stay in good legal standing. Your business structure and revenue will influence which taxes your business has to pay.
Choose your tax year
Your business is legally required to pay taxes and keep accounting records on a consistent yearly schedule called a tax year.
Most businesses choose their tax year to be the same as the calendar year. You select your tax year the first time you file for taxes, but can change it later with permission from the GRA.
- Calendar tax year if you don’t have special accounting needs for your business.
- Fiscal tax year if you want your 12-month accounting cycle to end in a month that isn’t December.
- Short tax year if your business wasn’t in existence for an entire tax year, or you changed your accounting period.
Marketing and sales
Make a marketing plan to persuade consumers to buy your products or services, then decide how you’ll accept payment when it’s time to make a sale.
Content
- Make a marketing plan
- Choose how you’ll accept payments
Make a marketing plan
Marketing takes time, money, and preparation. One of the best ways to stay on schedule and on budget is to make a marketing plan. It describes the actions you’ll take to persuade potential customers to buy your products or services.
Your business plan should contain the central elements of your marketing strategy. Your marketing plan turns your strategy into action.
Use these sections in your marketing plan
Most marketing plans cover these topics. As always, use what works best for your business.
Target market
Describe your audience in detail. Look at the market’s size, demographics, unique traits, and trends that relate to demand for your business.
Competitive advantage
Describe what gives your product or service an advantage over the competition. It might be a better product, a lower price, or an excellent customer experience. Sometimes, an environmentally friendly certification or “made in Ghana” on your label can be an important factor for customers.
Sales plan
Describe how you’ll literally sell your service or product to your customers. List the sales methods you’ll use, like retail, wholesale, or your own online store. Explain each step your customer takes once they decide to buy.
Marketing and sales goals
Describe your marketing and sales goals for the next year. Common marketing and sales goals are to increase email subscribers, grow market share, or increase sales by a certain percent.
Marketing action plan
Describe how you’ll achieve your marketing and sales goals. List marketing channels you’ll use, like online advertising, radio ads, or billboards. Explain your pricing strategy and how you’ll use promotions. Talk about the customer support that happens after the sale. Government regulates advertising and labeling for a number of consumer products, so make sure your advertising is legally compliant.
Budget
Include a complete breakdown of the costs of your marketing plan. Try to be as accurate as possible. You’ll want to keep tracking your costs once you put your plan into action.
Measure and update your plan
Plan to compare your marketing and sales costs to the revenue it generates. You want to make sure you’re getting a positive return on investment, or ROI.
Some tactics are hard to measure — like print advertising or word-of-mouth campaigns. Get creative and use others’ advice, but be consistent in how you measure the effectiveness of your marketing efforts.
Marketing plans should be maintained on an annual basis, at minimum. Measuring ROI will help you know which part of the plan is working and which part needs to be updated.
Don’t forget about operations
Not everyone agrees on the exact distinctions between marketing and sales, but most people recognize they’re connected. The influence operations has on marketing and sales is often overlooked.
Simple operations elements like your staff uniform, where your product is made, or the product return process contribute to your customer’s experience. That experience shapes how your customers view your company, and can influence whether they’ll become a loyal customer for life or tell their friends to stay away.
Choose how you’ll accept payments
The kinds of payments you accept can impact your marketing and sales, as well as your bottom line. Accept forms of payments that are cost effective, secure, and provide a positive experience for your customers.
You’ll need a business bank account no matter what kinds of payment you choose.