Basic accounting tips for business owners and entrepreneurs.
Running a small business is not as complex as running a large business or corporation. However, good accounting practices are important for any business regardless of size. How you account every transaction in your small business will determine if it will survive in the future. Keeping accurate records of revenues and expenses will help track where your business is, and whether it is making profits or losses. The following are accounting tips for small businesses that will help them manage receivables and payables, and avoid their business from sinking before they grow.
Tip 1: Keep accurate records
This is the most important requirement in accounting. If the business owner keeps inaccurate records, the accounting results will also be wrong. To manage records, owners can purchase accounting software for small businesses that can track all the daily transactions with ease. I recommend QuickBooks for small business accounting.
Tip 2: Sort and file all receipts
Despite that small businesses can be using computerized systems, keeping accurate records of receipts for all business transactions is important. Systems can fail and entrepreneurs can lose all their accounting information. Receipts will help recover all the information if such happens. Accounting software backups can be mitigated as well. But online cloud accounting services are your ultimate and safest method to prevent data losses.
Tip 3: Keep separate records for personal and business expenses
Business and personal expenses must be treated as two separate things. Business owners should consider having separate bank accounts for personal savings and expenditures and another account for the business entity. This accounting practice will help save accounting time when time for reconciling the books comes near.
Tip 4: Track all expenses
You should track all business expenses with diligence because expenses are the main reason for business failures. If possible, use bank transfers to pay expenses so that you’ll have minimal receipts to sort from and help track cash flow. Expenses can be paid weekly or monthly to avoid many unnecessary transactions to file.
Tip 5: Avoid debts with clients
Having a large amount of account receivables is great, but money held in the client’s pockets is not preferred until it is paid. Small businesses run under limited capital and owners should not allow clients to hold on it to the extent that the business lacks money to purchase stock. Accounting should include having well laid policies on how payments should be made to avoid the risk of bad debts.
Tip 6: It pays to pay
Accounting is not an exercise that can be done by everyone. Sometimes, hiring a professional accountant to check your accounting books, even if it is on a monthly basis, can help keep accurate, orderly and up-to-date records. A professional accountant is well versed with tax deductions or potential improvements for which a small business is eligible and an owner can get tax advantages by having an accountant do the accounting on his/her behalf.
Tip 7: Diversify payment options
Having a small business without large purchase and cash amounts to be paid does not mean that you have limited ways to get paid. Accept various payment methods, such as online payment processors and use cloud-based accounting software to manage the payment processes easily and in an automated fashion.
Tip 8: Calculate monthly income and expenses
Every entrepreneur running a small business is doing it to get profits. In the end of each month, an entrepreneur should be in a position to account for the profits and expenses for the month. This will not only determine whether the business is making profits or losses, but will also help to project the minimum income needed to meet the expenses of the coming month.
The Take Away
Finances are the backbone of every business. These accounting tips for small businesses can sound simple, but it is critical and not as simple as it may sound. If you do not have good accounting knowledge as an owner or entrepreneur, get an accountant to do the accounting for you and ask them to educate you on the basic ways for keeping accurate accounting records.