The truth about business is that you are only as successful as how much sales you are able to generate. The income from sales is the lifeblood of your business, and your financial management systems must be set up to ensure that all your income is accounted for properly, that risks associated with managing income are minimized, and that the accounting information regarding your income can support decision making for your business.
To help you in managing your income properly, here are a few tips:
#1: Bank All Income:
No matter how you receive your income, make sure you have a system of depositing all income in the bank before you start spending. This is a physical as well as process control that instills discipline in your organization and makes it easier to establish an audit trail for all income you receive. If you do not do this, you will find that as cash comes in, you will begin to spend it without ensuring that you record it properly. The payment into the bank each day creates a “natural” record of your income, and ensures that there are no gaps or leakages when it comes to tracking your income.
#2: Issue Receipts:
Another powerful way of tracking all your income is to ensure that receipts are issued for all payments made. This way your accounting system can trace the actual cash to the bank and tie it to the receipts that customers are issued. The receipts can also be reconciled back to your inventory to ensure that none of your goods were issued out without payment, and reducing the risk of loss of income.
You should ensure that all your customers get receipts, and make it a punishable offence on your employees for any customer not to get a receipt. By doing this you are stepping up the level of financial discipline in your organization and ensuring that there is a perfect harmony between your inventory, sales and actual cash receipts. You should also as much as possible separate the role of marketing from that of the person issuing receipts, and create a process for checking that products or services sold were actually paid for and receipted.
#3: Manage Debtors:
If you sell your products on a credit basis to your customers, then you have to create a dependable way of tracking your debtors. The accrual basis in accounting requires that you should recognize income once the customer has enjoyed the product or service even if they have not paid for it.
This means that you should have a record of credit purchases and have a system for ensuring that payments are made; that there is sufficient follow-up to ensure payments are made; and that once payments are made, they are properly recorded. Credit sales can be a very powerful way to expand and grow your business, and many small businesses use this to grow their client base and revenue.
It is important however that you are able to track your credit sales, so that you do not lose potential revenue and undermine the growth of your business. It is also important that you have clearly spelled out credit policies that define the conditions under which you grant credit, the amount of credit that can be offered, allowable credit periods and the processes for recovering payments.
#4: Track Income By Categories:
Another way to manage your income effectively is to track your income across different categories of products and services that you offer. For example, in a school, income from nursery can be separated from income from primary classes. This way the school owner can see which source of income is contributing more to business and can help in taking decisions regarding the business. Some businesses can separate income based on geography or by different client segments.
Depending on your business, categorizing income helps to improve business planning and decision making. A trainer may for example separate income from training from income from consulting, or that from corporate clients from income from SMEs or from individuals.
The idea is simple, yet powerful: categorizing customers and categorizing income helps you with important information that you can use to improve your business. In a restaurant, tracking weekend income vs. weekday income; or income from breakfast vs. lunch vs. dinner; or outdoor catering vs. in-restaurant orders can help the restaurant owner take better decisions about the different aspects of the business.
#5: Discourage Cash:
One powerful lesson that every business owner can learn and imbibe is to discourage cash payments as much as possible, especially when you do not have the capacity to manage cash appropriately. With the increasing use of technology in payment systems, you can reduce some of the risks of cash like pilfering and robbery by using POS Terminals, Online Payments and Online transfers that still give you instant credit to your accounts and are more secure than cash and more reliable than cheques.
You should use such payment platforms especially in settings where a number of different types of payments can be made, and where such payments may not be traced to physical products. A barbing salon for example – if the owner is not there barbers can render services and just collect the money without remitting to the till. In a school, the front desk staff can sell admission forms to prospective parents and never remit those little amounts of cash.
Using on-line platforms and enforcing their use in certain cases drives revenue assurance for your business.