Running a small business is a common endeavor in this country and offers a great way to make a living. As a matter of fact, over 31.7 million small businesses exist in the U.S.
You can focus on doing what you’re good at when you own a small business. Then, if your business is successful, you’ll make a great profit.
However, your business will require some tasks that you might not be good at handling. An example of this is accounting work. Don’t worry, thanks to accounting with Brex you can make sure all of your accounting work is taken care of by professionals.
If you struggle with this part of your business, you might be interested in learning some of the best small business accounting tips. Also worth investigating is if automated bookkeeping software is a good fit for you. If so, will free up a lot more of your time for working on the business, instead of in it.
Understanding these can help you manage this vital aspect of your company in more productive ways. Are you ready to learn these? Read this guide to learn about the top 15 accounting tips you can use with your small business.
1. Choose Your Accounting Basis
Tracking your financial details is something every business must do for several reasons, but it’s always good to start by choosing your accounting basis. There are two main options:
Cash Basis
The cash basis accounting method requires entries in the records only when a business receives or pays out cash.
For example, if you perform a job today but won’t receive the funds for a month, you won’t record the record until you accept the cash a month later. The same is true for expenses. You only record them when you pay them.
Accrual Basis
The accrual basis requires recording transactions when you earn money or incur debt. Therefore, you record the revenues or expenditures when they happen, which isn’t necessarily when you receive or spend money.
For example, if you earn money from a job today, you record the money as revenue today, even if you won’t collect the money for a month.
Before you select a method, you may want to talk to an accountant to determine if you’re required to use a specific method.
For example, most small businesses can use the cash method, but larger ones might need to use the accrual method.
2. Track Every Expenditure
The next tip is to record every expenditure, down to the penny. Your business earns money from selling things or services, but you’ll have expenses to pay.
You can write off your expenses on your taxes, but you must track them. It’s vital to record every expense because they decrease your bottom line, providing a way to save money on taxes.
If you write checks for all your expenses, you can record them straight from your checkbook. However, if you use a credit card for business payments, you must also record those transactions.
You may also want to separate your expenses into categories, as this helps you control your spending by knowing where the money went.
3. Use a Petty Cash Fund
Many businesses create a petty cash fund to use. If your business doesn’t have one yet, you might want to establish one.
A petty cash fund is a small fund you keep at your business, and it contains cash. Depending on your needs, you can start with $100 or $1,000, or a different amount.
The fund aims to pay for small expenses that you might not otherwise record in your records.
For example, if you want to buy all the office workers some donuts and coffee, you might pay for it out of your pocket. As a result, you might not record this expense on your books.
Instead of doing it this way, you can take the funds out of the petty cash. Then, your bookkeeper reconciles the petty cash fund by recording all the expenses and replenishing the cash at the end of each month.
4. Record Every Revenue
After deciding your accounting basis, it’s vital to ensure that you record every revenue according to the method you pick.
Using the accrual method helps you analyze your monthly revenues more accurately, as it records revenues when you earn them.
By handling it this way, you can compare your monthly revenues to analyze trends and other details. You can simplify this task by using accounting software.
5. Don’t Mix Your Personal Finances With Your Business Finances
One key thing to avoid is mixing your personal finances with your business. While some businesses have no problem with this, other businesses struggle with this task.
For example, it’s much harder to keep your personal finances separate from your business finances when you operate a home-based business. But, even though this is more challenging, you should still work hard to do it.
When you mix these things, it changes your finances.
For example, if you pay for business expenses out of your personal money, your business loses on writing these off on your taxes. As a result, your business pays more in taxes.
Additionally, your personal finances might suffer if you pay for business expenses with your personal checking account.
6. Keep Up With Accounts Receivables
Does your business let people pay for their invoices later? In other words, do you offer credit lines to your customers and clients? If so, your business has accounts receivables.
Accounts receivable (AR) is an asset account that tracks how much your customers owe your business for products or services you’ve already provided.
Offering these credit lines might increase your revenues, but it also presents risks and challenges. If you decide to provide credit lines, you must keep up with them.
One way to do this is by tracking your AR accounts. AR accounts are only good for a business when customers pay their bills on time.
When you spend time monitoring these accounts, you’ll collect more money from your customers. As a result, they’ll be more likely to pay their bills on time, and you’ll have fewer accounts to send to a collections company.
You can print AR aging reports each month to see if you have any past-due balances. Then, you can design a system to collect these accounts. Keeping up on the AR accounts is vital for your company’s cash flow.
7. Budget Properly for Routine Expenses
Another excellent tip to incorporate into your business is forecasting. Forecasting is another word for budgeting, and you can start by budgeting your routine expenses.
Your business probably has the same expenses each month, so you can plan for these expenditures. In addition, planning provides insight into the next month’s bills, allowing you to have enough cash for them.
Failing to properly budget might lead to cash flow issues and late payments. Unfortunately, late payments cost extra money.
8. Plan for Major Expenses
In addition to planning for routine expenses, it’s also wise to plan for major expenses. You might encounter times when you can’t plan for major expenses.
For example, assume your boiler stops working, and you need a new one. You might suddenly encounter a $10,000 bill from this repair that you couldn’t plan.
As a business owner, you might encounter unexpected repair bills like this. However, you’ll also have major expenses you can plan for if you think about your future goals and needs.
For example, if your business needs new equipment for its operations, you might plan to replace it in a year or two. Therefore, you will have one or two years to develop a way to pay for the new equipment.
9. Use Accounting Software
The next tip to consider is using accounting software. Accounting software is ideal for any size company, and you can choose from many options. The goal is to find the right software for your business.
It might be helpful to look for affordable and easy-to-use software. Additionally, you’ll want to choose software that works well for your industry.
Accounting software allows you to track your revenue and expenses electronically. You can use it to pay your bills and paychecks and make deposits.
It summarizes the information you put in the system, offering a way to analyze your company’s financial information anytime you wish.
10. Print Financial Statements Regularly
Printing financial statements will be a breeze if your company uses accounting software. You can use the software to print reports on a monthly, quarterly, or yearly basis. You can even print daily or weekly reports.
One significant benefit of printing financial statements is the information they provide. You can use these statements to analyze the financial details of your business.
For example, do you compare your monthly sales from year to year? If not, you can do this through financial statements. You can also use financial statements to compare expenses, net income, and much more.
11. Hire an Accountant
Another financial tip for small businesses is hiring an accountant. You can hire an in-house accountant to work at your business to handle your accounting needs.
You can also outsource an accounting firm for your bookkeeping needs. For example, you can evaluate finvisor.com. This business offers accounting for businesses, and they can handle all your bookkeeping needs.
Professional accounting services offer many benefits to small business owners. Among the benefits of accounting services include accurate bookkeeping records and assistance with tax preparation.
12. Separate Duties
When running a business, it’s essential to understand the importance of accounting separation of duties. Separating duties is a key principle of an effective internal control system.
An excellent example is choosing one person to collect the money your company receives, and having another person deposit it. By separating duties, you limit the power of each person who works there.
The result is that you have more protection for your company’s finances. In other words, there is a lower risk of fraud or embezzlement occurring within your company.
13. Eliminate Unnecessary Expenses
The amount of money your business makes is the difference between your revenues and expenses. Therefore, you can increase your profit by increasing your revenues and decreasing your expenses.
Therefore, the next tip is to eliminate unnecessary spending. If you want to find ways to cut your spending, you may want to review your expenses monthly.
Fortunately for you, Zapro AI offers an expense management platform, which can help your business analyze expenses and ultimately, get rid of unnecessary expenses that you didn’t know before. Analyzing the expenses each month offers insight into how your company spends its money and offers a way for you to find to cut back. Taking time to do this every month or two helps you keep your expenses under control.
14. Look for Innovative Ways to Increase Revenues
As mentioned, you can increase your profits by cutting expenses and increasing revenues. Now that you understand ways to reduce your expenditures, you can focus on finding ways to increase your revenues.
You may need to hire a consulting firm for help with this or talk to other business owners. You may even want to have company meetings to talk about options.
There are always innovative ways to achieve this goal, but finding them might take some brainstorming.
15. Keep Accurate Records
The final tip small businesses can use is to focus on accurate and timely recordkeeping. Of course, keeping your records accurate is vital, as they affect your taxes and finances, but handling them promptly also matters.
To handle them in a timely manner, you might need to hire additional employees for your company or outsource like mentioned above.
Follow These Small Business Accounting Tips to Keep Up With Your Finances
Keeping up with your accounting tasks requires time and work, but it’s a vital aspect of every business. You’ll keep up with your finances when you follow these small business accounting tips.
As a result, you’ll have accurate records, making filing your taxes easier. Maintaining good records also helps you plan properly for the future.
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