A healthy business can be characterised as a business that is keen on meeting their obligations, generating new revenue streams and ensuring that its existence is in harmony with the community it operates in. to operate efficiently, a business must keep track of all its finances; capital, cash flow, credit and debit balances and ensure that all these are in line with the business goals and operations.
A registered business is a separate legal entity from the owner or the management team and therefore business and financial expenses and incomes should be kept separate. In addition to this, it is essential for the business to keep a set of financial records to keep track of important parameters like sales, operational expenses, capital expenses, cash flow, all debts and obligations. Keeping these books up to date will ensure that all debts and obligations such as taxes are paid within the stipulated period. This eliminates fines and penalties that take cash away from the business.
Personal expenses that are paid by business partners or associates should not be included in the books of accounts like in the case of Myles Haverluck. When included, profit or loss declared by the business is not a true reflection of the business. When taxes, investments and other things are based on such statements, they become misleading and the consequences are unpleasant. But what could the business do to ensure that this does not happen?
Employing qualifies accountants who understand business operations and accounting requirements is the first step. The staff will be responsible for preparation and presentation of financial statements. The second step is to have distinct business and personal accounts. All business expenses should be dispensed from the business account while the personal ones should be paid from the business account. It is important that all expenses are categorically classified as either business or personal especially when one person is tasked with all payments as this prevents confusion and haphazard payments.
All business must have checks and balances to ensure the financial health of the business. For example, all payments must be authorised before any payment can be done. In addition to this, there should be different personnel to carry out different duties. For example, there could be a finance manager who must authorise all payments. The finance manager could be under the supervision of the CEO or business owner but should be objective enough to ensure only business expenses are paid from the business accounts. Having departments and departmental heads is also important as it ensures that there are different levels of authorisation for all expenses.
There should also be an internal auditor or audit department to oversee the internal operations. Annually, the business accounts should be audited by a qualified, experienced and independent auditor or audit firm in order to ensure that the business discharges its operations as and when they fall due and that the financial statements are a true reflection of the state of the business. This important especially in cases where the business may require to raise additional funds from investors in future.