How to Insulate Yourself From Financial Failure

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It can be overwhelming! You are the owner of a business. You know very little about book keeping and accounting with its technical ‘jargons’ and concepts. But you know when you are making money. You can track your bank balances and know when the money is flowing in or not.

 

Your problem is that you want to be pro-active rather than reactive. Let me explain…

 

To be reactive financially is to wait until something unpleasant happens to your finance before you take steps to correct it. What some people say “medicine after death.” This approach can be frustrating, expensive and leads to failure.

 

You are aware of it and would rather want to be proactive. To be proactive is to anticipate when problem is knocking at the door and taking necessary steps either to avoid the problem entirely or to minimize its effects on you and your business.

 

You have determined in your mind to take all necessary actions to prevent financial disaster in your business.

 

For you to do this effectively and efficiently, you need prompt, accurate, realistic and adequate information upon which you can take decisions.

 

Here are the steps you can take to ensure that you get what you want:

 

Step 1:

Always demand from your accountant or finance manager to give you written steps by which he or she intends to successfully achieve the 7 stages of Record Keeping and Accountability. Go through the procedure and ask questions. Be sure you understand it clearly and that it is practicable.

 

Step 2:

Before problems come, check and ensure that your accountant or finance manager gives you the three crucial statements of accounts you need to operate your business. These are:

– Statement of Sources and Application of Funds

– Income Statement – Also known as Profit and Loss Accounts

– The Statement of Financial Position – also known as Balance Sheet

 

Step 3:

When these statements are produced, take time out to study them. Call your accountant or financial manager or whoever prepares the statements to explain to you how he arrived at each of the figures.

 

Step 4:

Personally cross check a sample figures in the statements. For example, you can look at your fixed asset schedule, point at one of the figures and ask for the ledger. Trace the figures in the ledger to the schedule and satisfy yourself that the figures are authentic.

 

Step 5:

Always ask for your Bank Reconciliation Statements from your Accountant or Your Finance Manager. This is a statement that reconciles (or agrees) your ledger with the Statement of your accounts with the bank. Let me explain.

Every transaction you carry out with the bank, the bank records it in your accounts with them. You are also expected to record it also in your own ledger. So, if all transactions with the bank have been recorded accurately by both you and the bank, your balances should be equal. But it seldom happens like that. There will be some transactions left out either by you or by the bank. So Bank Reconciliation Statement is that statement which merges and gives the reasons why balances in your ledger and that of Bank Statement are not equal.

 

Many businesses ignore this simple process. Do not fall into such error. Ask the bank to give you your Statements of account at least once in a month. You can also log into the websites of your bank and download your statements of accounts.

 

Step 6:

When the Reconciliation Statement is given to you, trace the “Balance per Bank Statement” as stated in the Reconciliation Statement to the one that come from the bank. If you are in doubt, call your bank to confirm the figure.

 

Also trace the “Balance per Ledger” as stated in the Reconciliation Statement to the Ledger books and confirm that the figures agree.

 

Step 7:

Take a course in Financial Education and Management which will normally include Book Keeping, Record Keeping and Accounting. Keep searching for financial knowledge and keep acquiring financial skills.

 

This is the only way you can insulate yourself and your business from financial failure.

Source by James Gbolagoke

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