Top 7 Accounting Tips for your Small Businesses
For any small and medium-sized, the accounting function can be tedious and time-consuming. If you own a business, it is one of the functions you should pay attention to because it is an important aspect of managing your business. Failing to manage your accounts - including receivables, debt, taxes, and expenses - correctly could cause your business to fail. Applying simple bookkeeping strategies can put your business on the path to success. Here are 7 tips on good accounting practices that your business should embrace for faster business growth:
1. Get someone to provide accounting or book-keeping services
While most small business owners consider themselves fit to head sales, marketing, and accounting functions to cut costs, it helps to get a book-keeper to do accounting. This is critical in ensuring that financial errors that could affect your business are captured early. At the same time, it is relaxing for business owners when a person who has accounting knowledge and experience in handling their books of accounts. For starters, consider hiring a freelancer or on part-time so you don't have to pay a full-time allowance for the services. Where resources allow, you may outsource accounting services to credible firms such as TW Accounting Services. Alternatively, you can get accounting software that allows you to crunch your numbers.
2. Separate personal accounts from business accounts
While the law does not require business owners to have separate bank accounts, it is advisable not to mix personal funds with money for the business to facilitate tracking of business transactions. When you have a dedicated bank account for your business, you are able to account for every business transaction, even when receipts get misplaced. You can also tell the exact balances in your business account so you avoid overspending. Instead of paying expenses in cash, consider using electronic transfers so you have proof of transaction and reduce dependence on receipts.
3. Have your bank account reconciled every month
Every month end, ensure that your business accounts are reconciled. If your business has a high number of transactions, consider conducting this exercise more frequently. Reconciling your bank accounts ensures that your accounts are up-to-date and do not get out of control as the business grows. Bank reconciliation also helps in identifying data entry flaws and track any missing transactions. When your financial statements are accurate and your tax reporting is updated, you can be able to monitor how your business is progressing. Bank reconciliation does not have a difficult exercise, have your book-keeper or accountant develop a system that works well for your business. If your budget allows, consider getting an accounting software with features such as daily bank feeds that make bank reconciliation easier and faster.
4. Put 25% of your revenue in a separate, interest-earning account
Setting up a separate account enables you to 'hide' some funds from the day-to-day financial ongoing in a place that is not easy to access. Consider putting at least 25% of your revenue in a separate interest-earning accounts. This helps you manage cash flow and ensures that your business has funds to take care of tax installments when the need arises. This enables you to avoid hefty fines due to non-payment and allows you to earn some income from interest while you are at it.
To get an account that offers good interest rates, build rapport with your bank so they can help you identify a banking product that suits your needs. Identify a specialist business banker to work with you in finding financial solutions that are ideal for your kind of business. Such a business banker will be able to advise and assist you in getting better interest rates, lower bank fees, better loan terms and facilitate long-term financial planning and visioning.
5. Track monthly expenses and income
You can identify areas that are doing well and those that need to be improved in your business by tracking your expenses and incomes using profit and loss statements. For instance, if you realize that your internet or mobile charges are increasing, you can negotiate for better deals with your service providers. You can replicate this with your main suppliers when you have the information. At the same time, maintaining a cash flow statement can give you a broader view of your business expenses and incomes so you see seasonal trends and payment cycles.
Tracking your cash flow trends also allows you to take note of money flow timings in and out of your business. Watching these trends provides insights on times when your business will need more cash and when it will need less cash. For instance, you may notice that every year, all your business insurance payments fall due around the same time. This can drain your business cash flow if it comes at a time when income levels are low. However, turning your cash flow statement into a planning tool, you can ensure that your business has sufficient funds set aside to take care of such bills.
6. Always prepare a budget
Planning your finances is critical to the success of your business because it ensures that your money is spent prudently. A budget enables you to manage and plan the performance of your business finances. When you compare your budget to actual income and expenditure, you will be able to see where you can save money and where leakages are happening. Ideally, your business budget should enable you to monitor the trends in your industry and seize business opportunities, react to budget shortfalls immediately so you can address budget excesses and develop broader plans with respect to purchase of assets, investments, and employment of more staff.
7. Send invoices to customers promptly
Always send invoices to your customers promptly - most preferably weekly. This is important because the faster you send invoices, the quicker payment will be made. To ensure that this works for your business, consider streamlining your invoicing process so that it is accurate and that invoicing is done on a regular basis. Sending invoices out regularly also enables you to manage your cash flow and lessens the stress of managing your business. Ensure that all the details that your customers require are on the invoice, especially the purchase order number. Address it to the correct person and be sure to include your payment details on each invoice.