(…) What basic knowledge of finance do you need when starting a business? (Quora)

(This article first appeared on Quora Germany.)

The most important decision to be made about finance when starting a small business is how to organise the finance function. In other words, find a good tax advisor who will accompany you from day one and stand by your side. But careful: do not use external advisors as sparring partners, that quickly becomes expensive.

It is important to clarify which obligations you have towards the tax authorities and other public bodies. Ideally quarterly bookkeeping is enough, which saves costs again.

When you set up, you will already have decided on a bank. Make sure you have online banking access. Even more important is a daily look at the bank account. Without cash in the account your small business simply will not work.

Knowledge of finance (and bookkeeping)

Bookkeeping guarantees the proper presentation of all a company’s (financial) transactions. The word “proper” is the important one. Careful: right from the start, collect, check and keep all contracts, invoices, receipts and so on in an orderly way. Your tax advisor is both a disciplining and a helpful force here. Use a cloud provider such as box, dropbox or google drive to file and share documents. If you grow and receive and send more invoices, you can take a look at services such as Candis, Fastbill and the like.

Understanding the balance sheet

You can happily forget about the actual “balance sheet” at first. Firstly, it follows from the financial movements up to the annual accounts, and by then you will have those well under control thanks to your orderly financial handling (see above). Secondly, your tax advisor draws up the balance sheet and, thirdly, he will explain it to you. So there should be no surprises. Incidentally, the best way to understand or learn about a balance sheet is with your own example.

Making decisions

All decisions have financial consequences, all of them. That immediately raises the question of the financial plan, so that you can assess those consequences. You could philosophise about financial plans for as long as you like. I would like to suggest a different approach: a cash flow plan.

Cash flow planning

Take your bank account and assign the incoming and outgoing payments to accounts. (Your tax advisor can give you the chart of accounts.) And then think about which receipts and payments you expect over the next 1/3/6 months. Do not overcomplicate it, simply base it on your assumptions and knowledge. The costs are the easiest part: rent, 500 p.m. – internet 150 p.m. – and so on. That gives you a very good feel for where your company is heading. And later it is the best basis for your financial plan. But that is another chapter.

Tomasz Tunguz, a VC, put it like this (freely translated): what matters is not the accuracy of the plan, but the fact that there is a plan at all. Ultimately it helps you understand the direction of the company, make decisions and set milestones.

Here is the original question on Quora

Credits: Photo by Nick Morrison on Unsplash