Accounting is not a fun way to manage your small business part, but it is a very important part to keep it in blue. That is why it is important to know and apply the basics of small business accounting.
Accounting , specifically, is a substantial part of owning a business. Whether you're just starting out or a veteran business owner, the efficiency and reliability of your bookkeeping can play a big role in the overall success of your business. From helping you plan for the unexpected to being prepared for tax time, basic accounting principles can go a long way.
While small business accounting can be complex, here are some tips and practices that can help you stay prepared and keep your finances in order:
Anticipate short and long-term expenses
You may not be able to see into the future, but there are some unexpected expenses that will not go into your planning and accounting. You cannot determine future income, but you can predict it by reviewing past income cycles and tax returns to help you get an idea of what you may owe. Also, you will want to review income regularly (monthly or quarterly, for example) and calculate the taxes owed.
Another great way to account for short-term and long-term expenses is to review the history and current status of your business when it comes to things like inventory, building maintenance, equipment needs, and slow seasons. It's much easier to pay for things like roof repairs or equipment service when you plan. The same is true for balancing inventory and cash flow during periods when business may be slower than normal.
Set up and use specific business accounts
It's tempting, especially if you're a new small business owner, to use your personal accounts for some expenses. However, unless it is meticulously tracked, this can lead to problems down the road.
By setting up (and using) company-specific checking, savings, and credit card accounts, you'll be able to directly view statements to help record and reconcile your books on a regular basis.
If you are just starting out, be sure to open accounts that will be used specifically for transactions within your business. Not only will this help you stay organized, but you can also establish credit for your new business and protect your personal credit from potential losses.
Save receipts and track expenses
Accounting is a year-long event, which means that you will need to keep track of your expenses and other transactions during that 365-day period. Sometimes, especially if you are a new business owner, you may not know what receipts to keep or what expenses can be deducted at tax time.
Saving receipts, no matter how small, will help you control your expenses and help your accountant or bookkeeper get a clear and concise picture at the end of the year.
Track and analyze these expense receipts, preferably using an application made specifically for businesses. As a result, it will allow you to understand labor costs or costs associated with specific clients or projects.
Designate a file or folder on your computer to keep all your receipts scanned and uploaded. Better yet, save that file or folder to some kind of online storage program (Google Docs, Dropbox, etc.) to make sure it's safe from glitches or computer malfunctions.
At the end of the year, you may not need all the receipts that you have saved, but this is a situation where it is best to save it and not need it to have access to it.
Monitors accounts payable and receivable
A key part of accounting is understanding and planning your cash flow , or when you will receive or make a payment. Staying on top of bills will help you avoid the credit problems associated with past due or unpaid accounts. In the meantime, keeping up with customer invoices will allow you to stay on top of invoices and accurately estimate available cash.
One of the main benefits of strong accounting is getting an idea of where your business is located; accounts payable and receivable play an important role in this picture. You will also be able to observe any ebb and flow in your business or identify areas where it can expand, shrink or need additional attention.
Use an online bookkeeping service
There are many ways to approach accounting. Some of them aren't very efficient, while others, like using online bookkeeping services, can help you save money, grow your business, and ultimately keep your finances in order.
There is a wide variety of online bookkeeping services, ranging from more practical platforms that put you in the driver's seat, to services that will provide you with a designated individual or team to manage your finances. Ultimately, the decision should be based on your comfort level and budget.
These are just a few of the key things that are important to improving the overall business organization. By practicing this and becoming familiar with the financial side of your business, you will be able to develop your own unique approach to successfully managing your business accounting.