Running a small business is a tough nut to crack. As an owner or manager, you will have to undertake multiple tasks such as devising marketing campaigns, sending emails, and negotiating deals with vendors. It does not end there. You must also stay on top of your finances to keep the company afloat.
Accounting for a small business may be fairly intimidating, particularly if you do not have any prior experience in the subject. Numerous studies point to shoddy accounting practices as a major factor for more than 20% of newly formed small firms to crash within a year, with just 30% making it past the 10-year mark.
So if you want to ensure your business survives for long, pay attention to accounting processes. Fret not! We have compiled a list of practical accounting tips that will pave the way for the success of your small business venture:
- Leverage online learning and accounting tools
For many entrepreneurs, accounting is not one of their areas of expertise. Fortunately, the internet has made learning how to handle your company’s accounts and finances easier. You can become well-versed with basic accounting in little to no time if you are willing to watch beginner videos, read e-books, and participate in webinars.
Once you have mastered the fundamentals, you may use online resources to expedite your work. For instance, high-quality online invoicing software can generate invoices, accept online payments, and automatically send overdue payment reminders to customers. If you want to take your accounting skills to the next level, you can also consider becoming a Certified Management Accountant (CMA) by preparing with the help of the Wiley CMA review course and sitting for the exam. Though this certification is ideal for professionals looking to make a solid career in accounting, the know-how will also help you run and manage a business.
- Separate personal and business finances
Starting a small business means work becomes a key component of your life. But when it comes to managing finances, the line between your personal and professional life should not be blurred. Simply put, you should avoid mixing personal and business finances right from the get-go.
With a single business account statement, it will be easy to keep track of your balance sheet. As a business owner, this can help you better understand how your company is doing at any given time and accurately anticipate your future cash flow.
Additionally, having a separate bank account for your business and personal finances simplifies filing taxes. Whether you pay your taxes quarterly or annually, you will not have difficulty accessing the information pertinent to your tax statements.
- Pay attention to unpaid invoices
Just sending invoices to your customers is not enough. Occasionally, they may require a prod to make a payment. Keeping track of your receivables is essential, so you know who to contact at the end of the month.
Several businesses give their customers anything from 90 to 180 days to pay, sending a reminder every 30 days. Some companies impose a late fee if an invoice is unpaid for 30 days or more. For debts that have been unpaid for more than 180 days, you are better off employing a debt collection agency.
Typically, you might have to pay between 25% to 50% percent of the total account receivables to the debt collection agency. However, they have the power to compel the debtor to pay by whatever means necessary, including demonstrating their financial capacity, notifying credit agencies, or even taking them to court.
- Keep a log of every transaction
Keeping accurate and detailed records of your organization’s financial activities plays a vital role in accounting. Do not wait until you have a mountain of receipts piled up before you begin to keep track of your finances. Even though tracking your costs is a great way to keep an eye on your cash flow, it can also maximize your tax deductions along the way. Be sure to categorize each item according to deductible categories to save time during the tedious tax filing process.
In case of an IRS audit, keep your financial records for a minimum of three years. As a small business owner, you do not need a drawer full of papers or a box full of strewn receipts to keep track of your financial information. Therefore, make it a point to store your transaction digitally and, while doing so, do not forget to create a backup for them.
- Revisit your credit policy
It is not uncommon for companies to offer credit to loyal consumers, especially when personal relationships are involved. But watch out for being overly kind. Credit extended to customers can easily snowball into unmanageable debt. If you are allowing your clients this latitude, you should review your credit screening procedure to ensure you are placing your faith in the right people.
An efficient credit policy should link your firm’s goals with business processes and help your organization reduce write-offs and bad debt. You should regularly update the credit policy – preferably once a year – after considering new credit and collections processes and changing risk tolerance.
- Constantly check your numbers
If you do not review the data you get as part of your bookkeeping process, it will not be useful to you. Assess your business’s finances on a quarterly or monthly basis, depending on the structure of your company. It is a good way to stay on top of your finances and ensure your records are in order throughout the year.
- Hire an accountant
Hiring an account is one of the easiest methods to handle your business finances. The first thing you should do before looking for an accountant is to determine the scope of the financial assistance you require. Observe the state of the company’s financial records and cash flow. You should probably consider hiring a full-time accountant if you have significant issues with your company’s cash flow. If your finances are in decent shape, a part-time accountant specializing in tax preparation could be a sensible option.
To get the best results, working with someone with relevant experience is always the smarter thing to do. While small businesses often operate on a tight budget, you can find remote accountants without breaking your bank.
Any decisions you make about payroll, inventory, reporting, or risk will affect your finances. In other words, your organization’s accounting department is the key player behind all decisions. Optimizing this area with the tips listed above can take your small business to the next level.