Many business owners, especially MSMEs, still mix personal and business finances. As a result, cash flow becomes unclear and business decisions are often flawed. Yet, recording business income and expenses is actually quite simple, provided it’s done routinely and in a structured manner.
With proper record keeping, you can even see whether your business is making a profit, losing money, or stagnating. This will undoubtedly help you evaluate your business performance. So, read this article to the end, My Profit Friends!
Benefits of Recording Business Income and Expenses
In economic terms, a business’s income and expenses are known as cash flow. The record is called a cash flow statement. or cash flow statement.
According to BDC, cash flow is the movement of money in and out of a business. It shows how much cash is generated and used during a given period. If more cash comes in, then cash flow is positive. Conversely, if more cash goes out, cash flow is negative.
By regularly recording your cash flow, you can gain a number of benefits as a business owner. Here are some of them.
1. Understand your spending patterns in depth
The cash flow statement provides a comprehensive overview of expenses not always reflected in the income statement. For example, loan installments or asset purchases will be clearly visible on the cash flow statement. This helps you understand exactly where your money is going.
2. Increase Potential Cash Inflow
By understanding your income and expenditure patterns, you can identify ways to increase cash flow beyond profit. For example, if too much money is being spent on inventory, you can speed up inventory turnover or invoices to return funds to the business’s cash flow more quickly.
3. Evaluate the Business Financial Plan
Recording your cash flow also allows you to compare your financial plans with actual results. From there, you can assess whether your cash management strategy has been effective or needs improvement.
4. Helping During Financial Crisis
If you can read cash flow trends, you can be better prepared for potential future cash shortages. This anticipation is crucial, as it allows you to quickly take preventative and remedial measures to help your business survive difficult times.
5. Measuring Business Performance
Ultimately, records of income and expenses can be a measure of a company’s overall performance. By comparing actual and projected data, you can identify areas that need evaluation—whether operational, financial, or marketing strategy.
Practical Ways to Record Business Income and Expenses
Recording income and expenses is a crucial step in maintaining a business’s financial health. Without proper record-keeping, you can lose track of where your business’s money is going or where your income is coming from. Here are some tips you can apply when keeping records.
1. Pisahkan Rekening Pribadi dan Bisnis
One common mistake entrepreneurs make is mixing personal and business funds. Therefore, keeping your personal and business accounts separate allows you to more easily track your business cash flow without being distracted by personal transactions. This also makes it easier to prepare financial reports or apply for business loans.
2. Make notes regularly and consistently
Don’t wait until the end of the month to record transactions. Get into the habit of recording your expenses and income regularly—either daily or in real time. Discipline in recording is crucial to prevent transaction data from piling up and to keep it accurate and up-to-date.
3. Use Fixed Transaction Categories
Define transaction categories from the start, such as sales, operating expenses, or raw material purchases, and then use them consistently. Neat categories facilitate cash flow analysis and clearer financial reporting.
4. Save Physical and Digital Transaction Evidence
Every expense or income should be supported by evidence, such as receipts, notes, or invoices. Keep these records regularly, either in physical or digital form, for reference during audits or evaluations.
5. Routinely Check and Evaluate Reports
Don’t just record your data; you also need to evaluate it regularly—perhaps weekly or monthly. By regularly reviewing your cash flow statement, you can detect potential problems, identify trends, or identify opportunities for improvement that can improve your business performance.
The Most Popular Methods for Recording Income and Expenses
There are many ways to record business cash flow. The choice depends on the needs, scale of the business, and the owner’s habits. Of course, each method has its own advantages and disadvantages. Here are the three most commonly used methods.
1. Manual
This method involves recording income and expenditure transactions directly in a notebook. It’s typically used by micro-business owners who aren’t familiar with technology or have only a few daily transactions.
Advantages:
- Nearly zero cost, no special tools needed.
- Easy to use for anyone.
- Not dependent on electricity or internet.
- Can be carried anywhere.
- Flexible and free-format.
Disadvantages:
- Prone to forgetting to record or making writing errors.
- Difficult to track transaction history efficiently.
- Not practical for large volumes of transactions.
- Cannot calculate automatically.
- Complicates the creation of neat financial reports.
2. Spreadsheet
This method uses spreadsheet software, such as Excel or Google Sheets, to record transactions in a table format. It is typically used by business owners who want to organize their finances without additional costs.
Advantages:
- Data is neater and easier to analyze.
- Can use automatic formulas.
- Does not require an internet connection (for Excel)
- Easily customizable according to business needs.
- Can be used as a basis for financial reports.
Disadvantages:
- Requires basic computer and spreadsheet skills.
- Prone to errors if formulas are incorrect.
- Does not automatically record transactions.
- Quite time-consuming because it must be updated manually.
- Risk of data loss if files are not saved correctly.
3. Financial Application
Currently, there are financial applications or business management applications such as Labamu that are specifically designed so that business owners can automatically record income and expenses and even create comprehensive financial reports.
Advantages of the Labamu Application:
- Practical, all transaction records in one application.
- Can automatically categorize transactions.
- Can provide financial reports that are accurate, fast, and real-time.
- Can be operated by multiple staff members with different access rights.
- Integrated with other features such as stock management, cashier POS system, and many others.
Disadvantages:
- Requires an internet connection for full features.
- Requires adaptation at the beginning of using the application.
- There is a subscription fee for premium features.
So, that is the comparison of the three commonly used business financial recording methods. If you want a more practical solution, it’s time to switch to Labamu.
With the available features, you can manage expenses, income, and business operational activities more easily and efficiently with just one application, automatically, quickly, and accurately.
Download the Labamu application now via Google Play or App Store and start managing your business finances more smartly!
