6 Most Important Small Business Accounting Tips
Most successful small businesses have one thing in common. Their accounting records are error-free and up-to-date. Fortunately, it’s relatively simple to keep your finances in order. All you have to do is follow a disciplined approach to your bookkeeping and remember a few basic rules.
In this post, we’ll provide you with 6 small business accounting tips to get you started. Implementing these helps to simplify your accounting processes and improve cash flow, and most importantly, will help you get a clear view on your accounting, on the state of your company's health and saves up time on administration tasks drastically.
Tip #1: Open a Separate Bank Account For Your Business
That it sounds obvious? Well, it is, yet you would be surprised how many new entrepreneurs do this critical error and mesh their personal finances with their business ones, later on struggling to untie the two.
This is one of the first things you should do when founding your business. A different bank account for your company will help you track your business transactions easily. It can also keep your personal assets separate from your business liabilities.
Open a business checking account first. You’ll get access to online banking, and your account could also allow you to accept debit and credit card payments from customers.
Next, consider opening a savings account to set aside cash for essential payments that aren’t due immediately.
At first, it can be even same bank and just another personal account if you don't want to go the extra mile with a business account and later on expand, but important is to separate, to draw the line between personal finances and company's funds.
Tip #2: Choose Your Accounting Software Carefully
Adopting the right accounting software provides several advantages.
It can simplify your bookkeeping and help you track your business operations and manage cash flow. But the number of accounting software in the market can make the selection process difficult.
Which accounting software should you go for?
When making your choice, it’s best to follow a step-by-step approach. Start by identifying your needs. Here’s a list of features that you may want in your accounting software, among them most important being:
- Customers and accounts receivable tracking
- Vendors and account payable management
- Inventory management
- Financial accounting
- Financial statements and related reports
How many users will you allow to access the program? Check if the software permits multiple users and the cost involved.
Finally, it’s advisable to opt for a cloud-based application. This will allow you to access your accounting data from anywhere, and your records will remain safe as cloud accounting software providers maintain backup systems to protect your data.
Tip #3: Give Invoicing Your Customers The Importance It Deserves
Invoicing is a crucial activity. Delaying an invoice or sending one that is inaccurate leaves a poor impression. Ensure that your invoices are sent promptly and are error-free.
It’s also a good idea to be polite. Include the words “please” and “thank you” in the invoice. Your customers will appreciate the courtesy, and it could help you strengthen your relationship with them.
But that's not all that should be on your invoice. Make sure your invoice always essential elements. Not sure which ones are these and how to include them on your invoice? Read What 5 Things to Check on Every Invoice You Send guide by ZarMoney.
Tip #4: Focus On Accounts Receivables
Always remember that CASH IS KING! A small business should always have the money to pay suppliers and employees on time. And one way to improve your Working Capital is to ensure that you follow an effective accounts receivables management strategy.
Keep in mind that selling on credit has its pitfalls. If the customer doesn’t pay on time, it could lead to increased interest costs for your business. Bad debts strain your cash flow and eat into your profits. Sometimes even paying in advance with your free cash can bring you invoice discount. This payment discount normally ranges from 0.5% to 3%, and that can already add up to some solid saving.
Here are some specific steps to manage accounts receivables:
- Evaluate the customer before you sell on credit.
- Set clear payment terms.
- Monitor receivables and implement a system for reminding customers to pay
Want to know more? Learn 5 tricks to get paid faster in this guide by ZarMoney.
Tip #5: Keep Your Receipts And Business Tax Records Safely
Good record-keeping is at the heart of a strong accounting system. It will help you create accurate financial statements and reports. These, in turn, play a crucial role in providing you with the information you need to manage your business.
There’s another reason your business records are of vital importance. The IRS may want to see them to verify that the income you have booked and the deductions you have claimed are genuine.
Which are the documents that the IRS may ask for? Here’s a partial list:
- Receipt books
- Cancelled checks
- Credit card receipts and statements
- Documents evidencing travel and entertainment
Most documents need to be kept for three years, but it may be necessary to keep some records longer than that.
Tip #6: Get Professional Help
Many entrepreneurs think that hiring an accountant isn’t necessary, that they can manage it all by themselves, How hard can it be? approach. They are tempted to go it alone--after all, it’s just a matter of keeping track of your income and expenses and storing documents carefully.
But it isn’t as simple as that.
Of all the small business tips in this post, this one is the most important. You should seriously consider hiring a professional accountant or a bookkeeper if your business is growing and you’re finding it difficult to devote time to your bookkeeping responsibilities. If a backlog of work accumulates, it could be cumbersome to sort things out. It could also be expensive.
What should you look for in a business accountant? As far as accounting degrees go, the Certified Public Accountant (CPA) certification is the gold standard. Look for a CPA who has experience in your industry. However, it’s perfectly alright to consider an accountant with one of the other accounting certifications. The Certified Financial Analyst (CFA) and Certified Management Accountant (CMA) degrees are highly regarded.
But for many small businesses, a bookkeeper can serve the purpose equally well. What’s the difference between a bookkeeper and an accountant? A bookkeeper will update your accounting records and handle all the routine work. However, setting up accounting for small business isn’t easy. So, you can consider hiring a CPA on a part-time basis for specialized tasks like establishing your accounting processes and handling your tax-related issues.
Generally speaking, a bookkeeper is a cheaper alternative of a professional that doesn't have certification and that deep experience in the field, who is well-versed in financial terms and statements, and can manage you from A to Z while being supervised by an accountant or you, as a business owner. An accountant is then someone with certification and often in-depth experience in the field and at least bachelors' degree in accounting or finance. An accountant is then to work alone by himself, being responsible for all inputs and outputs to be processed properly.
The Bottom Line
Paying attention to your company’s accounting requirements can help your business in many ways. Make a start by implementing the tips:
- Open a Separate Bank Account For Your Business
- Choose Your Accounting Software Carefully
- Give Invoicing Your Customers The Importance It Deserves
- Focus On Accounts Receivables
- Keep Your Receipts And Business Tax Records Safely
- Get Professional Help
and you’ll soon see the benefits that a reliable set of financial records can provide. Each of these tips should pay for itself. Making a mistake in your financial statement? You can hardly imagine the headache IRS will give you if you miss paying your taxes, something a professional will vouch for. Suddenly running out of cash? Something that shouldn't happen if you keep your account receivable in mind. Are your invoices constantly being sent late, paid late, and you have to urge the third party to look for lost invoices? This is something a simple accounting software can fix for you, often even with basic free plans, like one from ZarMoney.
Did you know that ZarMoney offers a FREE trial for every small business owner? And that ZarMoney scores as one of the top cloud accounting and inventory management solution providers in terms of features and price point for most important features?
Or, simply give it a try for free.