foreign [Music] guys and welcome to this business management lesson in today's lesson we're looking at Key knowledge point two one three that is unit 2 area of study 1 and the third key knowledge point for this area of study today specifically we're looking at the importance of establishing bank accounts Financial control systems and record keeping strategies now this is all about managing your business finances none of this would be necessary if every dollar you made was strictly digital and could be handled by your bank or the taxes you might need to pay were just handled by the government if you didn't have some responsibility for managing your own finances then these considerations probably wouldn't be so important but as it stands as a business manager as a business owner you are responsible for managing your own finances and that's why we need to be conscious of financial Control Systems now it's the objective of most businesses if not all businesses to make a profit and it's important that you've understood up till now hopefully that profit is what's left from your Revenue after you've paid all your costs the costs of any business are going to include things like the cost of purchasing the resources you need to run your business electricity water gas maybe wood plastic leather things like that paying wages to your employees paying bills all those sorts of costs and of course Revenue you're typically going to make either through investment or from selling goods and services to customers now ultimately there are some dumb ways that you could manage these finances and one of the examples I've given up here is if you store all of the revenue or of the profit you make from your business under your mattress at home or bury it in the backyard there's a chance that it could go missing if you've got it under your mattress there's a chance your house could be robbed or your house can burn down and you'll lose that money and if you've just got your bills shoved under your mattress or in a hole in the ground you're not going to have a clear idea probably of how much money is there particularly if it's a large sum of money in small denominations smarter ways to manage this money uh outlined probably in your textbook and I'll give you some examples here having business bank accounts implementing control systems and record keeping strategies are the the common wisdom tells us that these are the best ways to manage your money to ensure that you're able to achieve your business objectives now when it comes to establishing business bank accounts the reason that this is recommended is so that you can separate your personal finances from your business finances if you've got to pay a tax bill for your business and your business finances and your personal finances are all mixed up it's quite possible that you'll lose track of how much money you're supposed to be keeping for your personal expenses paying rent paying for groceries things like that and you might begin to end up spending that money at your business or vice versa you might be spending more money in your personal life you buy a fancy car maybe you upgrade to a bigger house and pay for some Renovations and then suddenly you realize you've actually tapped into some of your business money and you can't afford to pay all of your employees salaries at that time keeping the money separate will mean that it's much easier to keep a track of that money and make sure that enough is allocated in each case to manage the expenditure requirements for your personal and business requirements if that money is all mixed up it adds further complications you should know by now that every business is required to pay taxes and so are every individual that makes an income uh and if you are running a small business it's quite possible you'll need to calculate your taxes based on how much money you've made how much money you've spent and how much money you have on hand and once again if that money's mixed up with your personal finances it might be a little bit harder to account for how much tax you need to pay certainly too uh there is a legal requirement and this is where this becomes really quite clear that you need to establish business bank accounts Partnerships and any incorporated business model so private limited companies public listed companies social Enterprises are all legally required to have separate business bank accounts you might notice if you're paying attention that I didn't say sole Traders are legally required to have separate business bank accounts and that's because they're not sole Traders are not legally required to have separate business bank accounts however it is strongly advised that everybody who manages a business sole Trader or otherwise does have separate business bank accounts when it comes to choosing a business bank account there are several things to consider Banks typically charge fees for keeping accounts open with them and that's one way that Banks make money from their customers and so too Banks charge interest on the value or the debt associated with a business bank account so you'll want to make sure that the fees and the interest rate that's being applied to your accounts is something that is sustainable for your business if the fees are too high you don't think you'll be able to pay them reasonably then don't go with that bank look for a different bank if the interest rate is being applied your credit account is too high and the volume of your credit debt just keeps increasing in an unsustainable way take a loan pay off that credit account and perhaps consider opening an account with a bank that charges less interest some banks offer an overdraft facility with bank accounts that means that if you have a hundred thousand dollars in that account and you get charged a hundred and one thousand dollars for an order of supplies that the account can actually go below zero and go into debt and that might be useful if you have a spendings account you don't want to put too much money in that account you don't have all your business Savings in that account because this is the account that gets charged by your debtors or by suppliers when you're making purchases uh and it might be useful to have that overdraft facility there just to ensure that when you are making purchases the purchase will go through and then you can make amends with your finances once you're back at your office or something like that similarly too some banks offer Credit Services it might not be an overdraft facility necessarily it might be that you have a business credit card that you can use to make purchases and then you can reconcile that debt later and certainly some banks are just going to be more convenient to deal with than others some will have better customer service some might offer you as a business um customer a personal banker who will be able to respond to your queries and needs other Banks might have ATMs distributed widely while yet other Banks don't have ATMs but maybe they have very good online services and whatever you're going to need most is something to consider when you're choosing a bank now Financial control systems are pretty much what they sound like it's controlling who has access to your money once again our examples of poor financial management a hole in the ground in your backyard or just under your mattress at home that's not very well controlled anybody with access to your yard or your home whether that is intentional access or not will then have access to your finances banks are so popular because essentially they offer a financial control system that's the service that Banks offer to customers that we take advantage of when we open account with a bank and it's why we pay them Bank fees to open those accounts it's us paying for that Financial control for example my personal bank accounts people can't just access them willy-nilly unless they have my username and password to my online banking or have access to my bank cards that I keep in my wallet as it stands if you have a bank account you know that your money is pretty secure in that account and that only authorized people yourself included will have access to those finances that's what you want to make sure of for your business finances but there are some other things you want to consider when it comes to financial control systems in your business perhaps you want to implement policies within your business to ensure that only authorized individuals are able to access certain volumes of money your financial team the people involved in financial management for your business will likely have access to some if not all of the business finances but maybe you want them to have access to deposit money in some accounts and not take money from those accounts maybe when you're allocating budgets to different departments you want a system implemented where the managers of those departments can submit receipts and get reimbursed for expenses uh or perhaps they're given a business credit card with a limit on it and they can make purchases for their Department using that credit card but because the limit they can't overspend on that credit card whatever the authorization system you implement is it needs to be part or it needs to be robust to form part of a strong financial control system there are other considerations down too down here too we've already mentioned segregation you don't just want everybody in your business to have access to all of your finances and what you do want is you want a system that will let you keep complete and accurate records you want to know where every dollar has come from you want to know where every dollar is going and you want to know what has been done with all of the dollars that were collected as profit where is it now how do you access it certainly this is going to be important if you're ever called to um present or disclose your financial information for private limited companies and public listed companies with shareholders presenting and disclosing Financial records might be an important part of transparency for those shareholders and certainly around tax time disclosing your revenue is going to be an important element in being able to ensure that you've paid the correct amount of tax some systems that are quite popular will include the use of budgeting cash flow management so ensuring that money is changing hands and moving through your business in a way that's controllable and expected and certainly things like inventory control and auditing are also going to play an important part in any robust Financial control system as far as record keeping strategies go it's essentially this we know our formula for calculating profit is revenue minus costs well your revenue is far as record keeping strategies is concerned we need to know where it came from what did you do that attracted that Revenue uh did it come from a customer who owed you money uh have they paid off everything they owed you or could you expect more to come in once it came into the business where did you go which account is that money in now do you have designs for it do you know where it's going next certainly with regards to your costs where did it go what did you spend it on the bill that you were paying off when you spent it is that now paid off completely or do you need to make further payments those are the kind of Records you need to be keeping and certainly with regards to profit where is it now what have you done with it what are you going to do with it if you're interested in this sort of thing that's what the VCA accounting subject is all about in summary for this key knowledge Point maintaining thorough Financial records is incredibly important to ensure that your finances are kept secure and that you have robust records to help you keep um on top of your financial obligations certainly in terms of paying taxes that's a really common financial obligation for a lot of businesses that thorough Financial record keeping is going to assist you to keep on top of but certainly too in ensuring that you're making a profit being able to account for the money that you've made and the money that you've spent will help you ensure that you are staying in the black rather than spending more than you're making and certainly too secure Financial Control Systems will help prevent all sorts of situations from arising that could be a barrier to the achievement of business objectives including fraud uh Financial mismanagement or over expenditure once again leading to a loss of profit or a lost profitability because you're spending more than you're making that's all for today see you next time