5 Bookkeeping Best Practices to Help Manage your Small Business
To sustain and expand a small business, financial management is extremely crucial. Without it, the probability of hitting cash flow crisis or wasting money or facing other financial information is quite high which can lead to closure of the business. Accurate bookkeeping is a necessity for any small business that has a vision to stand out in the competitive market.
Bookkeeping is one of the most critical tasks in any business venture. Bookkeeping can be quite helpful in keeping the small business organized and profitable. For small business owners, it can be one of the most overwhelming areas as their area of expertise may lie in running the business and not the books.
The International Business Structuring Association (IBSA) in snapshot of the accounting and bookkeeping has pointed out that accounting and bookkeeping sector is projected to grow at an annual rate of 4% over five years and earn $19.9billion by 2018-2019. Small business owners must take their bookkeeping activities seriously and put some effort to learn the basic principles of financial management and apply them on a daily basis and leave the more complicated tasks to hired professionals. Timely and accurate financial information is a must for running a successful small business. Bookkeeping helps small business owners in gaining a better understanding of the progress the business has made. Patterns can be viewed to draw comparisons with prior business years. Proper book keeping can allow business owners to get an idea about the areas within the business which are making a profit and areas where costs can be trimmed.
Here are bookkeeping best practices to help manage small businesses:
- Setup Separate Bank Accounts:
Small business owners must make it a point to keep separate bank accounts for different aspects of their business. It can be tough to differentiate between personal and business spending and income. Different accounts for employee payroll, business establishment rent, mortgage payments, etc. must be managed separately. Separate accounts also ensure that the small business has always funds available for their intended use. The principle applied to personal financial goals can be applied to business expenses and revenues too. Small businesses must enquire with the financial institution regarding applicable monthly fees or discounts for maintaining multiple accounts. Small businesses can gain immense benefits by having separate accounts as they can get a clear understanding of the money that is coming into the business and what are the expenses.
- Leverage Technology:
Small businesses do not require expensive investments to stay on top of their cash flow. All they need is a reliable software application that can keep a track of their daily financial data. Though it is tempting for small businesses to track their expenses by manually entering numbers into an excel sheet but this practice can also lead to lot of mistakes. Adopting a basic software program right from the beginning provides various advantages such as creating invoices and sending them out in seconds, creating estimates to be converted into invoices, managing and tracking invoices, view invoices that are past due and effortlessly generate profit-loss statement during tax time.
- Hire the Right People:
According to an article in Forbes, one of the biggest mistakes small businesses make is hiring the wrong people when it comes to accounting. One of the most trusted employees of small businesses are accountants. Small businesses save a lot of money every year because of the intimate knowledge the accountants possess with respect to their profession including tax laws. It is not a good idea to invest heavily on an efficient business accounting system if the small business does not have qualified people running it. Small businesses must spend some time to find knowledgeable and experienced employees to minimize errors and simplify the various accounting processes.
- Keep a Close Watch on Everything:
Everything and anything related to the small business must be tracked by saving receipts, using dedicated bank account and business credit card. Receipts are solid proof of the money that is being spent by the small business throughout the year and saving them either in paper or digital form can be really helpful when the business is getting audited. Late and unpaid bills can seriously affect the cash flow of the business. Keeping a close watch on the cash flow statement can help the small business in avoiding the scenario of insufficient funds. A good way to ensure that expenses are correctly entered into the accounting software is to keep a record of all the receipts. Outstanding invoices can be determined by looking at the monthly reports generated by the accounting software.
- Plan for Tax Well in Advance:
Small businesses must avoid waiting until the end of the financial year to start figuring out the taxes. The taxes must be prepared throughout the year before the year-end cut off to shield the small business from any unwanted errors or surprises. It is a dangerous practice to enter expenses and deposits months after they occur. It is easy to forget to include expenses in the tracking system which can cost the small business on their taxes down the road. Every business deposits be it loans, revenue, funding or profits must be clearly recorded so that the small business is taxed accordingly. They must have a robust accounting system in place that is being managed by the right people to ease the workload during tax time.
Bookkeeping may seem like a burden for small businesses when they are trying to grow their business but it is extremely essential if they want to stay ahead in today’s tough economic climate. To manage daily functions and run the business successfully, it is vital to have a proper bookkeeping system. Small business can employ the services of a professional accounting and bookkeeping outsourcing service provider to fuel business growth and mitigate risks. Small businesses can know where things really stand and avoid huge business mistakes by keeping a close eye on their books. Giving importance to bookkeeping not only improves the understanding of the business operations but also builds financial credibility and speeds up growth.