MANAGING YOUR BUSINESS BANK ACCOUNT

MANAGING YOUR BUSINESS BANK ACCOUNT

The next logical step after properly registering your business is to open up a bank account in the new company’s name. Remember you are now a totally separate entity from your business and as such you cannot (and should not) mix the monies of the two in fact you are required by law to have a separate bank account for business purposes.

Getting started

All of the big banks have different offerings for entrepreneurs and start-ups, so do your research and decide which one best suits your needs. Find out what is required in order to open the account – usually it is the PICA requirements and the registration documents, but different banks require different documentation, some may require three months’ statements and some six months’, for example. Be sure to take down the name and contact details of the person that has given you this information and confirm what they have said to you in an email because often what one business banker will accept, another won’t.

Take a copy of the confirmation email along with the rest of the documentation when you go and then get them to sign in receipt of all the documentation that you have given them. You’d be amazed at the amount of documentation that somehow goes missing from the bank – and at least this way you will have proof that you supplied the correct paperwork.

In order to run your business and personal finances separately, you need to pay yourself a salary into your personal bank account and from this you need to pay all your personal bills. As your business invoices are raised and paid, this money needs to go into your business bank account and all the business requirements need to be paid out of this account. You will be taxed separately, you in your personal capacity and of course the business as a business entity, with the applicable rates varying significantly. The business will also need to pay its portion of your UIF (Unemployment Insurance Fund) as well as the SDL (Skills Development Levy, if applicable) and all the other legislated requirements that pertain to the business and you will need to pay your portion of the UIF and the PAYE (Pay As You Earn) in line with the particular rate that applies to you as laid down by SARS (South African Revenue Services). So the business will need to be registered as an employee with SARS and the Department of Labour (DOL) and once that is done you will have to be registered with both SARS and the DOL as an employee.

Checks and balances

Make sure that you request and get your bank statements on a monthly basis, from the 151 of the month to the last day of the month – not the last business day, but the last day. The trend in some of the banks at the moment is to issue the statement from say the 23*d of the previous month to the 23’*’ of the current month. That is not helpful at all, as your records in terms of SARS requirements is a full calendar month.

Each and every credit on your account should reconcile (or match) back to an invoice that you have raised. The total value of the invoices that you have raised and hopefully been paid for will ultimately represent your total turnover. Credits on your bank statement that you may not have invoices for should be for things like refunds, or interest paid, which of course means that you should have documentary evidence as to why the credit is there in the first place. Remember that annually, you are required by law to submit financial statements to SARS and included in there will be your turnover for the year. If the credits on your bank statements do not match the turnover you may find yourself in a situation where SARS will do an audit – this is not an experience you want to have at all. It really is the one thing that you need to be proactive about. Make sure that your paperwork matches your bank statements.

On the other hand, each and every debit on your account should reconcile (or match) back to a payment or expense. Just as you are required to evidence your income, so too are you required to evidence your expenses.

All of your expenses should be listed in your general ledger, although they are usually grouped together for convenience. For example you may have an office telephone land line account as well as a business cell phone account. In the general ledger both of these would appear under “Telephones” and not separately under two different headings.

Be sure to get your bookkeeper or accountant to open up a “loan account” in the general ledger under your name. The reality is that you have spent money in your personal capacity to get the business up and running. Expenses such as the cost to register your business, or getting business cards printed or indeed anything that you have purchased in your personal capacity for the business is actually money that the business owes you and at some stage it will need to be paid back to you. Be aware though that it is always a good thing for the business to ‘owe’ you money but it should never happen the other way around.

Regular recons

Reconciliations should be done on a regular basis on your bank statement, especially when you first start-up although, quite honestly, it is a great habit to get yourself into. Let me explain. Just because your bank statement says that you have say R10 000.00 in your account, does not necessarily mean it’s so. There may be debit orders that still have to come through or bank charges and if you get all excited and decide to spend that full R10 000.00 on something you may end up where you are in an overdraft situation, and if you don’t actually have an overdraft facility the reality is that this could affect your credit rating going forward. So make sure, at least once a week, or even daily when you’re starting out, that you know exactly what expenses are still to be transacted on your account versus what is actually in the account.

Make sure that your bookkeeper/accountant gives you monthly management reports each and every month and more importantly, make sure that you actually understand what those reports are telling you. See the specific reports above.

As you can see, there is a huge amount of information that can be analysed by what happens in your bank account and in your books and it is of the utmost importance that you understand exactly where you are in terms of the finances, if you want to be successful.

Like all of the other aspects of your business, if you do not manage your bank account and your finances, you will not be able to measure what is happening. If you don’t measure, you won’t able to ascertain if you are making enough money to be profitable or if you’re losing money or even if your clients are buying specific products.

Make sure that you have set realistic targets for sales to ensure that you have sufficient cash How to meet your expenses, and make sure that you have set realistic budgets to ensure that you don’t overspend and put your business profits at risk.

Monthly management accounts

The income and expense statement. As its name implies this report shows you your income for the month as Well as all the expenses. The expenses should be listed as they appear on the general ledger so that you can (using the above example again) see the total figure that you spent on telephones for the month. Going forward, the previous months, or even year-to-date (YTD) should be listed so that you can make an informed comparison and in so doing monitor and manage your expenses.

The debtors and creditors ageing analysis. This is an ‘aged’ list (current, 30 days, 60 days, 120 days, 180+ days outstanding) of all your debtors (the people who owe you money) and your creditors (the people you owe money to). For obvious reasons it is not a good idea to let your debtors get out of control as it will affect your cash flow (which is your disposable income). Money that people owe you is no good to you at all as it is not in your bank. By the same token, if you don’t have money owed to you in your bank account, then you can’ pay the people that you owe money to and that is also not a good thing. Managing what your receivables are (money that is supposed to come in) as well as your expenses not yet paid is critical to ensuring that your cash flow is positive.

Trial balance. Again, as its name implies this report will list all of your expenses and your income and show you what your profit is for that particular month and going forward on a YTD w scenario too. It will tell you how well (or badly) your business is doing.

Cash flow report. This report will Show you exactly how much you have in your bank account on the date that the cash flow report was compiled.

Remember though that your books are reactive, they are usually only done for the previous month, which puts them in the past. The cash flow report can be done daily (and is often done on a daily basis in the big corporates) and that is the ‘right now, real time’ situation that your business is in, in terms of liquidity.

References: Nikki Viljoen