Running a business is without a doubt challenging. You have to know the how to market the business, know the ins-and-outs of the law, and take care of your finance. For many newly born CEOs, getting a grip on the financials of the business is the biggest struggle.
So, here are 5 financial basics that you need to wrap your head around.
1. Cash Flow Management
You need to start cash flow management from the moment you start the business. The rest of your business financials depends on it. Cash flow management refers to the amount of cash collected in a period, and used by the organization in a set period. It can also help you prepare and better manage the money that your organization receives.
A good cash flow management takes a buffer into account, so that if your organization receives lesser than expected funds, you aren’t hanging out to try.
2. Cost of Production
You should know the exact cost of production, or cost of service. It includes direct labor, direct materials, consumable production supplies, logistic and factory cost. The financial success of your business depends on this.
- Your pricing will set your target audience.
- Your price will determine whether your organization makes a loss, break-even or makes a profit.
The financial challenge for you is to balance these two. A company like Amazon runs in loss by giving heavy discounts, but it works for its financial running.
So many CEOs start planning and building their team, product, and management system even before the company is founded. The problem here is that bookkeeping is missed. From day one, you need to have a bookkeeping system in place. Bookkeeping allows you to keep track of your cash flow. More importantly, CRA requires you to maintain records for the last 6 years. That brings us to the next point.
Whether it is a receipt, invoice, or bill, as long as it is a document related to your business, you want to keep it. Trust us – it comes in handy if ever there is a tax audit by CRA.
You need an effective bookkeeping system!
4. File your Taxes
Filing taxes is an obvious statement, but what isn’t, is being aware of the taxes you have to pay. If you fail to pay all the taxes that you owe the government, you risk a tax audit and hefty fines. Income tax, sale tax, EHT, GST, and HST tax are just some of the taxes you need to be aware of and find out if you need to pay them.
5. Hire an Accountant
Most businesses think about hiring an accountant only when needed, and often after the business has grown. An accountant is left to deal with misshaped bookkeeping, poor account records and other issues, and this can lead to a big problem in the business. Choosing an accountant from day one is the best choice because you know that your organization’s financials are in safe hands.
As CEO, your job is not to handle the finances of the organization, your job is to ensure that someone competent is managing it. Delegate it to the right person, those of us at ATS Accounting are effective and experienced to know what we are doing.