7 WAYS SMALL BUSINESSES CAN HANDLE THEIR ACCOUNTING WITHOUT BREAKING THE BANK
Let your accounting fall behind as a small business owner is easy. While difficult and time-consuming, accounting is critical to any organization’s success. Maintaining balanced accounts allows you to better understand historical financial performance, including where you made and lost money, and further opens the door to better financial forecasts. The truth is that how you handle your accounting may make or kill your business. Hence efficient learning of accounting for small businesses is promoted. Here are some critical small business accounting tips to help you keep your books in order.
1. Maintain Receivables
The most exciting aspect of having a business is being paid. Managing your receivables isn’t as enjoyable, though. When you issue an invoice, you record a receivable, which means you register that a customer owes you money.
When a customer pays you, the funds should be applied to their invoice and recognized as paid. However, while trying to keep up with orders, this is often left for a later date. That implies you’ll have a lot of deposits in your revenue account and a report of your receivables that don’t balance when tax season rolls around.
The implications are that you will squander hours updating your listing, overpay on your tax return, and may end up with debts. This is why you must keep track of your transactions as they occur. Balancing your customers’ monthly payments can save you a lot of time (and money) in the long run.
2. Construct Cash Flow Statements
A cash flow statement may give you a clear picture of how money flows in and out of your business. You’ll be able to predict your finances better and allocate your budget if you prepare cash flow statements weekly or monthly. Regular cash flow figures might also assist you in developing financial trajectories.
Everything you need to know is included in this easy cashflow template and supporting article from the Association of Chartered Certified Accountants.
3. Consider Your Payment Terms
Choosing proper payment terms is another critical element in managing your small business’s cash flow. Many businesses that sell directly to customers accept payment right away. A restaurant, for example, receives payment when the clients finish their meal, but a plumber or electrician expects to be paid as soon as their task is completed.
Businesses that sell to other companies frequently extend credit in payment periods of 7, 14, 30, 60, or even 90 days. Extending credit to consumers and clients is an efficient approach to attract new business and create trust, but it directly impacts your cash flow. For example, offering payment terms of 60 days may be appealing to a consumer who can ‘purchase now and pay later,’ but how will you function while you wait for the money?
There’s also the ongoing issue of late payments to consider. Late payments are a major source of cash flow issues, so consider how you’ll encourage your customers to pay on time. For example, you might use various techniques, such as charging interest on late payments, giving early payment incentives to encourage clients to pay quickly, or implementing ‘due on receipt’ payment conditions.
4. Track Cash Expenses
When you are an entrepreneur, you must keep track of all business spending. Then, when it comes time to file your taxes, you can deduct these expenses from your overall income.
This will give you a more realistic picture of your entire profit for the year. It is simple to overlook cash-paid charges. Instead, request a receipt from your vendor or promptly report the expenditure to ensure that it is recorded.
5. Select Cloud Accounting Software
Almost all businesses, except for the tiniest, invest in cloud accounting software. Cloud accounting software may be an excellent choice for business owners who do not want to incur the fees of hiring a professional. Cloud accounting software is frequently used in combination with an experienced small business accountant to ensure that all accounting and tax duties are satisfied by expanding limited enterprises.
Accounting software such as Xero, QuickBooks, and FreeAgent are all popular options. They all provide a free 30-day trial, so you can determine the best match for your company before committing. Keep your personal and business accounts separate.
Many small company owners use the same bank account and credit card for personal and business purposes. However, if you choose this method, you risk missing critical commercial interactions. For example, having a separate bank account for your personal and company accounts will make it much easier for you, your bookkeeper, and your accountant to assess how you’re spending your money in the long run. We also advocate having a second company credit card to keep professional and personal costs distinct.
6. Hire a Tax Professional
Nobody likes tax season, but we all have to do it. Unfortunately, while DIY tax preparation may appear to be a bright idea at first, it might cost you thousands of dollars, if not more! Moreover, unless you’re an experienced tax accountant, you’re likely to overlook a tax deduction or pay less or more in taxes than you should. In addition, tax regulations are constantly changing, and failure to stay up can result in substantial income tax penalties.
7. Keep In Touch With Your Accountant and Bookkeeper
Make it a priority to stay in touch with your accounting staff, even if you’re busy. Consider them your trustworthy business counsel and partners who can give you helpful ideas and answers to your queries concerning taxes, financial flow, budgeting, and so on. Also, if they send you an email or a document that contains a phrase you don’t understand, don’t be hesitant to ask them to explain it. Always remember that information is power!
Summing it Up!
Following these basic yet efficient small company accounting recommendations can ensure that your finances remain structured and on schedule. Preparation and organization are essential in all facets of business, including accounting.
Spending time to get organized will help you prevent costly accounting mistakes later.