Get on top of your finances

Estimated reading time: 4 minutes

Having good budgeting and cash flow management practices in place are key to your business survival. It can mean having enough funds to pay your bills, or having enough profit to put back into your business to help it grow.

How a good bookkeeping system can help

Setting-up a good bookkeeping system for your business from the start is important in order to stay on top of paperwork and keep your business on track.

Having a good bookkeeping system in place will help you:

  • get finance, by making it easy to work out the financial position of your business at any time
  • meet business requirements, such as your income tax return or business activity statement (BAS), when they’re due
  • keep track of how well your business is doing and forecast future costs
  • work out where you might need to improve your business activities.

Keeping business and personal finances separate

It’s important to keep your business finances separate from your personal finances .

If you’re a sole trader or partnership, setting up a business bank account will make it easier to separate your business and personal finances. For example, it will let you easily work out what your business and personal income is and extract the information you need to give to your accountant or to do your tax return yourself.

If you run your business through a partnership, company or trust you must have a separate business bank account in the company or trust’s name for tax purposes.

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Preparing a budget

Having a budget for your business is important to help you:

  • understand your business’s current financial position
  • meet your business goals
  • chart your financial plans for the future.

A good budget will allow you to identify any areas where you are spending more than you have planned, or if you have any extra income you can use to grow your business. It will also help you know how much money you need to set aside to pay your bills.

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Manage your cash flow

Your cash flow is the money your business has coming in from sales or other income, and going out to pay for expenses. Keeping a record of the money flowing in and out of your business is crucial for managing your business finances and making sure you have money available to pay your bills when they are due.

Even if your business is making a profit, your business can still fail if you don't have enough money available to pay your lenders or suppliers on time.

Simple ways to improve your cash flow include:

  • following up on outstanding customer payments as soon as you can
  • reducing your expenses – you could try finding cheaper suppliers, updating your processes or consolidating your debts for a better rate
  • rearranging your expenses – such as organising a periodic payment plan for larger expenses instead of having to pay all at once
  • keeping track of your upcoming work
  • keeping track of whether you’ll have enough cash flow during peak and slow periods.

Did you know?

Keeping track of your business finances

It’s also a good idea to complete a monthly finance health check for your business by looking at your:

  • Cash flow statement - tracks all the money flowing in and out of your business and can reveal payment cycles or seasonal trends that require additional cash to cover payments.
  • Profit and loss statement - lists your sales and expenses and helps you work out how much real profit or loss you're making.
  • Balance sheet - is a snapshot of your business on a particular date. It lists all of your business's assets and liabilities and works out your net assets.
  • Financial ratios - helps you analyse the financial health of your business.

Did you know?

  • Pay as you go (PAYG) instalments helps you budget for your income taxes so you don’t end up having to pay a big bill at the end of the financial year.
  • You can also make voluntary pre-payments at any time towards an expected tax bill.

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Invoicing and collecting payments

Aside from making sure you can pay your business expenses on time, you also need to look at how you collect payment from your customers. Correctly invoicing customers, having the right methods to accept payments, and setting reasonable payment terms can all help you to receive timely payments from your customers.

Invoice or tax invoice

An invoice is a record of the goods and services your customers have purchased from you at the price they have agreed at so they can pay you.

If you run a business that isn’t registered for goods & services tax (GST), your invoices won’t include a GST component. This is considered a regular invoice.

If you’re registered for GST, your invoice must be a tax invoice. Tax invoices are different as they include the GST amount for each item along with some extra details.

See invoices to find out:

  • what is an invoice
  • types of invoices
  • what to do before you start invoicing.

Read about Setting up your invoices on the ATO website.

Types of payment

The types of payment you accept from your customers can vary depending on how your business is set up. For example, if you are purely an online store, you probably won’t be accepting cash as a form of payment from your customers.

Accepting a variety of payment types in your business will make it easier for customers to pay you and may even encourage faster payments from your customers.

Read more about common payment types including:

  • cash
  • direct debit payments
  • EFTPOS payments.

Payment terms

The Payment terms you set for your customers will outline:

  • when you expect payment for your goods and services
  • what payment types you expect
  • your debt collection policies.

If you offer your goods or services on credit (allowing your customers to pay you at a later time from when they receive the goods or service), your payment terms will help you:

  • prevent unpaid debt
  • know what to do if people don’t pay you on time.

Your payment terms also affects your cash flow. If you offer credit, you need to make sure that the terms you set will still provide you with enough cash flow in your business to pay your bills on time. There is also the risk of your customers not being able to pay you on time which you will need to account for.

It’s important to make sure you have enough cash flow to pay your bills when they are due to keep your business solvent. Sending a clear message through your payment terms to customers about when and how you expect to be paid will help you manage your cash flow and maintain good customer relationships.

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Other resources to help you get on top of your finances

Find more useful information to help you with your business finances:

More information is also available on state and territory websites:

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