5 Accounting Tips Every Small Business Owner Should Know
1. Use a bookkeeper or invest in an accounting software
Small business owners try to cut costs by managing all business functions including accounting by themselves rather than employing functional heads. However, it is important to invest in a resource to manage your company’s accounts efficiently. This can be in the form of a part time accountant or by using accounting software. Both can help you with number crunching, keeping your records organised, managing cash flow and preparing your financial accounts. An expert will know various ways to help you save money and use your funds efficiently, as well as can help mitigate financial blunders in the future. So even if you choose to use an accounting software, a bookkeeper can still be useful to help you be efficient.
2. Record daily expenses so you can budget for the coming weeks
It is advisable that you, as a small business owner, should keep records of your everyday expenses. Instead of calculating expenses every couple of weeks for payroll purposes, focus on every day or every week. This can help you have a better idea of where finances are each week and how much money you will need to budget for in the upcoming weeks.
3. Follow Up on Invoices and Client Payments
Seeing a large total under your Receivables column is a good sign, however that doesn’t count for much until that amount has been credited to your bank account. Sometimes customers miss or delay payments and ask for extensions – it is your duty to follow up on this and ensure these payments are made. Don’t allow clients to avoid making payments or work on long lines of credit. Insist that past dues are cleared before initiating new business orders and services. The Receivables department is crucial in keeping your company afloat.
4. Keep your personal and business finances separate
When you own a small business, it is easy to confuse your personal and business expenses if you are not diligent about segregating the expenses. It is essential to open a new bank account for business transactions. Separating business finances from personal finances will make it easier for you to review your invoices and tax forms, and to work efficiently to meet deadlines. It also ensures that your personal wealth and savings are secured and not being used for corporate or commercial purposes with regards to your business.
5. Maintain Profit and Loss Statements
A profit and loss statement summarises the revenue and cost incurred by your business over a period of time. It can be updated after a year or a quarter. The statement starts with the revenue and then cuts all the costs that are incurred by your business giving you the profit/loss before and after taxes. Being a small business owner, it is easy to get caught up in managing the day to day activities across different corporate functions and dealing with external stakeholders. In the midst of this it is very important to know the financial health of your business. By checking your profit and loss statements regularly you can account for future cash flows as well as spot possible trouble spots before they become problems.