Your primary motive to start a business should be to solve a problem. It gives you a sense of direction. All the same, you also want it to earn you lots of money so you can look down properly on employed peasants.
It’s a struggle to compete with all the other entrepreneurs out there. You want your products to be top-notch or your services to be memorable. You want to hit all the right notes with your marketing decisions. You want your unique management style made into textbooks one day. The fact that most of what goes onto these relies on your action is one of the exciting things in entrepreneurship.
Unfortunately, you may find that your action results into the money you were eyeing but the business still fails to take the step forward. One of the reasons for this stems from the boring administrative tasks no entrepreneur wants to do – accounting.
If you do not take note of the money coming into your business, it is easy to make the mistake of misreading business performance and making some poor business decisions.
Some end up being costly strategic mistakes down the road.
Money that comes into your business should be recorded in two forms to avoid any confusion. The first record is for receipts and the second is for revenue.
Receipts are all about the actual money that goes into your business account. Where the money comes from does not matter. It can even be that bank loan approved after waiting for an eternity. It can be the fresh investment you’ve opted to make into your business. What matters is that you have received cash.
These records go into the cash flow statement against the monies you had to pay over a period of time. This way, you arrive at a balance.
.The best practice for monitoring receipts is on short-term basis because it tracks operations of your business. This would normally mean you check the figures every month.
When you conduct business but are made to wait for payment, you have to record the activity as revenue. This obviously means you could end up having a profitable year but not actually have the money to show. New entrepreneurs need to appreciate that this is normal.
Small businesses overcome this by following working capital closely while big businesses look for cheap financing- this can fail as inthe case of Nakumatt. In countries where credit is cheap enough, it’s possible to ignore profitability.
Revenues are best followed up in the medium term since you want enough time to pass to sensibly judge how your business is performing. This would normally mean you check the figures every 3 quarter (3 months).