Top 10 accounting tips for small business owners: Setting your business up for success
Are you a small business owner who dreads balancing your books? Tired of feeling like you need a decoder to understand your finances?
Gone are the days of losing receipts and trying to make sense of your expenses. With these accounting tips, you can balance your books like a pro and keep your finances as crisp as a freshly printed banknote.
Whether you are just starting out or a veteran, these accounting tips will help you learn how to manage your cash flow, track your expenses and plan for the future.
Let’s dive in!
Separate business and private spending
A golden rule for accounting: Every business transaction should flow through your business’ bank account. Avoid making personal expenses on business accounts!
The last thing your accountant wants is to search your account and keep track of every shopping list or personal transaction. To keep it hassle-free, create a new account for your business transactions.
Your business will be more organised, and your accountants will love you!
Accounting software
Keeping accurate financial records is essential for any business. It is a fundamental part of financial management because it equips business owners with the data they need to make educated decisions. Accounting is often not one of the finest skills of many small business owners. It’s usually a good idea to get in touch with a commercial finance consultant to guide you through your financial needs.
On the other hand, accounting software are a great way to deal with problems related to bookkeeping. Not only do these software streamline and simplify time-consuming and error-prone bookkeeping tasks but also make it easier to compile accurate financial records. Most organisations already utilise cloud-based solutions for accounting and finance, demonstrating their widespread adoption and success among small businesses.
When a company expands and becomes more complicated, it may outgrow its entry-level accounting software and need to upgrade to an enterprise resource planning system. Once an organisation implements an ERP system, it can expand its capabilities by adding specialised modules that interact with a central database.
Maintain accounting records
Keeping accurate records is important for any organisation regardless of its size. Allowing you to store your financial documents digitally, most of the record-keeping process can be automated with the help of accounting software. You can also have a regular schedule to review your finances. Investing this time will allow you to check your accounts receivables to ensure your clients pay their bills regularly and on time.
Stay financially stable
As a business owner, unexpected expenses might pop up where waiting for the next day is not an option. That’s why, you need to remember to keep some amount aside for such situations. You can show your employees that you care and support them during tough times with salary advances. However, you might want to avoid handing them freely and have a clear policy and set expectations. While accounting, please keep track of each advance to stay organised and not accidentally overpay an employee.
Maintain an up-to-date ledger
With up-to-date books, management and staff can know how their firm is doing financially. Having updated books is easier with the help of automated receipt and invoice capture. You may also want to connect your bank account with accounting software.
Some accounting software have a plug-in that can automatically retrieve daily bank transactions and statement files from your bank account. In contrast, other software requires you to download and import credit card and bank statements manually. These statements can be easily reconciled by creating rules in the company’s accounts that match the system. Thus allowing you to have perfectly balanced records.
Refine AP payment and invoicing policies
Maximise your cash flow by paying bills on time, and take advantage of early payment discounts if you can. To ensure steady cash flow, encourage prompt payment from clients. This could involve checking up on a client’s credit history before doing business with them, providing discounts for paying early, and cancelling credit if necessary.
You can also use an accounting software with automated invoicing features, such as sending out invoices and reminders to avoid a buildup of unpaid invoices.
Keep an eye on high-cost expenses
Most small enterprises have high labour costs and inventory expenditures. To avoid this, you can hire independent contractors who charge by the hour as a cost-cutting measure.
This can help because contractors are not required to work a standard workweek of 40 hours or be eligible for benefits. Thus offering more cost-effective and efficient services. When managers get an accurate picture of the time spent on various projects, they can allocate resources more efficiently and save costs where necessary. Furthermore, you can reduce your inventory cost by keeping tabs on important parameters like inventory carrying costs, turnover ratio, and the amount lost to outmoded inventory.
Choose an accounting structure
Choosing a proper accounting structure for your company can be incredibly beneficial. You can consult your accountant on choosing between cash-based and accrual-based accounting and pick the most suitable option. Here’s a quick primer on each approach:
In cash-based accounting, revenue is recorded as soon as it is received. Expenses are recorded when money is spent. Smaller companies and service organisations that don’t keep inventory benefit greatly from cash-based accounting.
Income is recorded in an accrual accounting system when it is earned rather than received in cash. Expenses are documented when money is incurred and not paid. Large, complicated organisations that keep inventory or report to shareholders and investors use accrual-based accounting.
Examine the financial statements
Your accountant is responsible for entering data into the accounting software and your manager is responsible for analysing the accounting system’s results to run the company better.
However, regardless of how well they perform, cash flow issues are a common problem for small firms, but they can be eased with the help of a few basic accounting reports. They are as follows:
Accounts receivable (A/R) ageing report: This report details how much money you are owed by each customer and whether or not their payment is current. The report will not only let you know when you should follow up with the client about payment, but it will also offer an estimate of how much money you may expect to collect shortly.
Accounts payable ageing report: Here, you can see how much you owe your vendors and the due date. This allows you to plan for the future and deal with any potential cash flow problems.
Create financial projections for the future
Even if your business is doing well, you want to ensure things stay the same. Using financial projections and reports, you can estimate what your company will be like in two or three years. Financial projections help you figure out where to invest business revenue, or whether you need to apply for business loans. To get the best results, you can get in touch with your financial advisor and develop realistic projections.
To sum up
These were some of the accounting tips in the industry. Hopefully, these tips have helped you realise that accounting is not a chore but a way to keep your business thriving and your finances as sharp as a knife.
Accounting does not have to be a scary or tedious task. It can be a way to take your business to the next level by staying organised, keeping your cash flow in check and communicating with your team. If you feel stuck, we suggest you contact a commercial finance broker to help you navigate the trickiest accounting waters and deal with cash flow issues.
