Proper bookkeeping and accounting are at the heart of a thriving and efficiently managed business. Good accounting is one of the deciding factors between a failing and a successful business.
However, many startups and small business owners are often way too swamped in their daily business operations and fail to pay attention to financial bookkeeping. For the same reason, entrepreneurs are not recommended to manage accounting solely in the first place.
Secondly, they need to understand that proper management of their business finances and having an experienced resource dedicated to that process is crucial for a startup or small business’s success.
Adherence to and implementing accounting best practices is the only way to avoid cash flow issues and ultimate business failure. You must also ensure that your business follows all the fundamental accounting processes to guarantee strong financial management practices.
So, to help you with that and keep your business finances organized, this article will discuss the five key accounting tips for your small business.
And now, without further ado, let’s discuss each in detail.
- Understand the Law and Accounting Principles
While many small business owners fully understand the basics of managing business operations, they lack the knowledge required to ensure efficient bookkeeping and accounting.
These owners are often unaware of the local, federal, and state laws, let alone the legal regulations required and applicable to their business. For instance, you must:
- Record and maintain all paper receipts for at least the last three accounting periods. Otherwise, professional accountants often recommend retaining receipts for the previous seven years at least.
- Understand the latest accounting standards. Like you must know what is GASB 96 or 87 to ensure timely and proper implementation of the standard and to avoid legalities while keeping your business afloat.
- Provide all the paper receipts and records to legal authorities like IRS (Internal Revenue Service) to claim timely and rightfully tax deductions. Or;
- Accurately record earned income to avoid IRS penalties or tax underpayments etc.
So, if your business is not yet financially buoyant to hire expert accountants, make sure that you acquaint yourself with accounting and bookkeeping by learning the cores and the basics.
- Keep Business and Personal Records Separate
The fundamental component of accounting is to track and record all business expenses accurately, strictly, and in an organized manner. Whether you are a startup owner or running a small business, always keep your personal and business finances separate.
As a small business owner, the last thing you would like to spend your time and effort on is searching for that one business transaction through your personal account.
In fact, one of the first steps you need to take is to open a business bank account. It is possible once you have obtained the Employer Identification Number or EIN. However, you may use your social security numbers if you are a sole proprietor.
A business bank account offers many advantages over personal accounts, including:
- Easier tracking of business expenses to avail tax deductions
- Providing the line of credit option that the company can utilize to cover cash gaps; and
- Offering personal liability protection to keep personal funds separate from business funds.
Thus, make sure to stay fully organized in your business operations, as it will significantly help you strengthen your business’s financial health.
- Create a Budget to Achieve Goals
For small business owners, creating a budget to keep track of the business’s goals and objectives is another crucial step. In fact, it is one of the primary steps for accounting. The process involves generating projected expenditures and revenues. In addition, having a budget helps you set a benchmark for what needs to be done and how to achieve it.
In other words, setting up and reviewing a budget directly correlates to a startup’s success. Small businesses that consistently review their budget annually, monthly, or even weekly have success rates of 25%, 75%, and 95%, respectively.
When you have allocated a specific budget for your business’s accounting, you will be able to:
- Allocate resource properly
- Meet important and specific business objectives
- Improve decision making
- Plan for the company’s future; and
- Monitor performance
Thus, make sure to set up a proper budget for your business. Creating a budget is a significant pillar of your business’s overall security and safety. It enables you to understand and oversee if your business has sufficient revenue to meet its expenses and helps you make an informed business decision.
- Automate the Process with an Accounting Software
If you have been managing your business’s accounting, you would know that it is an ongoing task regardless of the size of your business. However, suppose you cannot hire an entire team of accountants to handle these tasks. In that case, another solution is to automate the process by using enterprise accounting software.
Especially for small business owners automating the manual workflows can be a great support. Instead of hiring a team of accountants, you can easily invest in accounting software or services. These automating tools are now readily available at affordable prices and are easy to implement.
Accounting software is designed to automate accounting processes that are mostly error-prone and time-consuming when performed manually. Plus, they help keep all the information organized to make financial statements.
Many startups and small businesses are now finding a lot of success by integrating cloud-based accounting software. While most companies start with basic accounting software, they can easily switch to an extensive ERP system as they grow and become complex.
- Keep Your Books Up to Date
Lastly, you must ensure that you keep the books current and up to date. It will give you a clear picture of the business’s financial standing. One of the easiest ways to ensure up-to-date bookkeeping is to automate the invoice and receipt process.
Or otherwise, you may link your accounting software with your bank accounts. Many accounting software offer plug-ins that automatically pull information from a business’s bank account and retrieve daily transaction data and statement files.
However, if you don’t have updated books, your income and certain expenses won’t be reported, and you will get a distorted picture of your business’s financial situation. This will lead to poor business decisions based on insufficient knowledge of the situation.
So, rather than reviewing the books monthly or weekly, set aside 15 minutes daily to update your books. Moreover, add new expenses and income sources and review previous records to ensure accuracy.
Good accounting practices lead to a thriving business. If you do your taxes timely, balance your books and keep track of business transactions, and set up a budget, you can easily find time to focus on other important business operations to provide only the best customer experience.
Businesses that integrate strong accounting practices from the start are more likely to be successful. So, review your business’s financial numbers and drive long-term success by making the most of the accounting tips above.
While accounting may not be your preferred field of interest, you must frequently review the financial metrics to leverage the opportunities to grow. You may do so yourself if you’ve just started, or you may get the assistance of qualified professionals or automated accounting software.