Accounting is the language of business. Understanding that language is an essential part of keeping your small business alive.
Being a small business owner isn’t easy. And neither is being an unofficial accountant.
With the hectic day-to-day operations of running your business, how can you possibly make time to learn bookkeeping? The idea of sifting through endless stacks of financial documents and ledgers sounds overwhelming.
Still, you understand the importance of not letting your accounting fall behind. Because maintaining accurate financial records is vital to the health of your business.
That’s why you’re asking Google questions like, “how do small businesses maintain accounts?”
These simple accounting tips will help you and your labor of love succeed!
8 Easy Small Business Accounting Tips
- Invest in an accounting system
- Keep business and personal expenses separate
- Don’t wait until the end of the year to do your accounting.
- Meet with your CPA throughout the year.
- Look at your financial statements monthly.
- You need to understand your cash flow.
- Create a budget.
- You should hire a professional.
Small business owners with no accounting experience need a reliable accounting system because that system is often the difference between success and failure.
Many affordable options will simplify data and organize your financial information to track expenses, income, and other activities easily. Xero, Quickbooks, Intuit, and Wave Financial, are just a few of them. You can even link your bank and credit card accounts directly to the software.
An accounting system makes your life easier and helps you to focus on business growth.
2. Keep Business and Personal Expenses Separate
New entrepreneurs often dip into their personal bank accounts in the early stages of business development. The practice of intermingling expenses can be problematic for many reasons.
- Personal and legal liability
- Tax implications
- Audit trail issues
- Bookkeeping problems
You can avoid these issues by opening a business bank account and establishing separate credit card accounts. Keeping personal and business accounts separate also improves your business credit score, helping you secure better business loans and reduce business insurance costs.
“Run all business expenses through the business, and pay all personal expenses from a personal account. Trust me, your CPA will thank you at the end of the year. You don’t want to spend lots of extra money untangling combined finances.” – Sarah Sinicki, Director of Business Development, Team 80 Small Business Accounting and Bookkeeping
3. Don’t Wait Until the End of the Year to do Your Accounting
Do you remember January’s expenses when you wrap up accounting in December? You probably don’t.
Business owners will too often make the mistake of waiting until the last minute to start thinking about their accounting. And they usually suffer from financial troubles as a result because waiting can cause significant issues.
You can handle most finances monthly.
Taking control of your finances and keeping bank reconciliations up-to-date monthly saves you from frantically scrambling at year’s end. We suggest you set a schedule so that you are touching financials monthly.
Well-managed finances close the door to preventable errors.
4. Meet with your CPA throughout the year.
Meeting at least twice a year also helps your CPA understand your business. The person handling your finances should know your company inside and out.
Be proactive. If you meet with your CPA at least twice a year, they’ll have time to review your finances, uncover missed details, and devise effective strategies that you can implement to help your business before the deadline.
Don’t wait until tax time; it could already be too late.
5. Look at your financial statements monthly.
We can’t overstate the importance of understanding the real-time financial health of your business.
It’s also essential to always understand your profit margins and net income. Generating a monthly profit and loss report and reviewing revenue and expenses is a best practice we advise.
Never neglect your balance sheet since it shows your cash balance, outstanding accounts receivable, and all other assets and liabilities. Your balance sheet is a current snapshot of your business’s financial health; use it, love it.
When you stay on top of your financial statements, you’re empowered to make timely strategic business decisions. These decisions can help business thrive today and into the future.
6. You need to understand your cash flow.
Small business owners that don’t track cash flow are on the fast path to becoming former small business owners.
Your cash flow is positive when there’s enough money in your business account to pay bills. If cash is rapidly dwindling, you could have a severe problem.
Cash flow visibility helps you grow operations strategically. You can start by monitoring and documenting your incoming and outgoing funds using your accounting system.
You should also prepare a cash flow projection looking two to three months out to avoid surprises. If there are cash flow constraints, it’s time to leverage a business line of credit.
7. Create a budget.
You can use your financial statement and cash flow information to create a budget aligned with your business’s economic trajectory.
Every entrepreneur should develop a budget. It’s an essential tool for financial tracking, especially for smaller businesses with limited funds that can benefit from operating within their means. A realistic budget can also help you understand the appropriate actions to take when problems arise.
Budgets help you anticipate future needs like repairs, expansions, and improvements without relying on credit. Accurate budget forecasting can also help you plan for staff hires and product and service investments and establish earnings and sales goals.
“Even a poorly executed budget plan is better than no plan at all. Take some time and plan out what you think your revenue and expenses for the upcoming year will be. Then compare the budget to the actuals monthly. The variances in these numbers can give you some great insight.” – Sarah Sinicki, Team 80
8. You should hire a professional.
You started your business because you’re passionate about your offering, and you want to provide customers with exceptional products and services.
You should focus on growing your business and serving your customers. And that’s not possible when you’re mired in book balancing, payroll management, financial forecasting, and tracking your accounts payable and receivable.
We want to do this work for you. Get in touch with us today!