Running a small business requires wearing many hats. One of those hats may be strategizing growth initiatives, while the next day, you may be taking customer calls and resolving important issues as the customer service representative. Now, let’s also not forget the accountant’s hat, which involves managing finances, tracking expenses and ensuring tax compliance.
When running a small business, your accounting practices can make or break your financial growth. Whether you’re just starting out or looking to improve your financial habits, these 10 accounting tips will help you manage your finances efficiently.
1. Separate Personal and Business Finances
It may be very tempting to blur the line between personal and business expenses when one is just starting an enterprise. However, this could bring in major headaches later on during tax time. Open a dedicated business bank account and get a business credit card to keep everything distinct. This will make tracking a lot easier and serve to keep you organized.
2. Automate Where You Can
Automation is very helpful for small business owners with little time. Utilize accounting software such as QuickBooks, FreshBooks, or Xero to automate invoicing, expense tracking, and yes, even payroll. They are time savers and eliminate human error, and thus improve your overall financial record keeping efficiency.
3. Track Every Expense
No expense is too small to track. By continually keeping a log of every receipt, from paperclips to taking clients to lunch, your bank account will always be up to date. That way you can prevent cash flow problems, make the best decisions possible, and spot any potential problems before they become serious problems. You can simply scan any receipts with apps and have them uploaded into your accounting software instantly.
4. Stay on Top of Invoicing
It is important to invoice customers in a timely manner and after a service is performed or a product is delivered. Consider establishing a payment plan with specified terms and late payment penalties that could help ensure timely payments are processed by clients.
5. Plan for Major Expenses
Unexpected expenses like purchasing new business technology, launching a marketing campaign or enhancing your office space can be challenging to manage without prior planning. You may want to consider creating a dedicated savings account or reserve for situations. By allocating part of your budget for these purposes you can ease the burden when unexpected costs come up.
6. Understand Your Financial Reports
You don’t need to be an accounting expert, but you should understand the key financial reports: balance sheet, income statement, and cash flow statement. These will give you a snapshot of your business allowing you to make more informed decisions. If you’re not sure where to start, consult with your accountant or financial advisor.
7. Prepare for Taxes Year-Round
Rather than scrambling at tax time, prepare throughout the year by keeping accurate records of your income, expenses, and deductions. Set aside money from each sale to cover your tax obligations, and consider working with a tax professional to maximize deductions and credits. A proactive tax strategy will save you money and stress in the long run.
8. Hire an Accountant or Bookkeeper
As your company expands, keeping track of your finances can get challenging and result in errors. Outsourcing to an accountant or bookkeeper can give you more time to concentrate on different aspects of your business. A professional expert can offer insights assist with tax strategies and make sure your financial records are precise and accurate.
9. Reconcile Bank Accounts Regularly
Reconciling your bank accounts involves comparing your internal financial records to your bank statements to ensure they match. Doing this regularly helps you catch discrepancies, detect fraud, and ensure that your cash flow numbers are accurate. It’s a simple but crucial habit for maintaining financial health.
10. Plan for Growth
Your financial needs will evolve as your business grows. We recommend that you periodically review your accounting processes, expenses, and financial goals. Whether it’s adopting a more advanced accounting software, seeking new financing options, or revising your budget, planning ahead will keep you financially resilient as your business scales.
In summary, wearing many hats can be challenging, but it is also very rewarding as it allows you to have a deep understanding of your business. With that being said, it is important to recognize that even superheroes need help sometimes and you may consider outsourcing certain tasks, such as accounting and payroll, to professionals who can provide their expertise which will free up your time to focus on what you do best. If you need an expert, The Balanced Hub is here for you.
