Nine accounting tips that will help your small business grow
Whether you’re a serial entrepreneur or a small business owner, one of the most intimidating aspects of striking out on your own can be money management.
Keeping finances in order is a critical component of a successful business, but bootstrapped startups or small businesses often don’t have the cash flow to hire professional help.
Depending on the size of your operation, a do-it-yourself approach to keeping the books can be an effective short-term strategy.
To maximise profitability, employ the nine tips below to make the most of your finances and put your business in a position not just to survive but also to thrive in the years to come.
1) Keep your business and personal finances separate
Never mix personal and professional is the cardinal rule of any business, but it’s especially true of finances.
Even if you’re embarking on a sole proprietorship with no potential for payroll on the horizon, you should still establish a business checking account. To open an account, you’ll need to register a business name and get a license to operate in your city or county.
Business accounts can streamline tracking expenses for tax purposes, and they’re a legal requirement for LLC’s (limited liability corporations) because they insulate your personal finances in the case of a lawsuit.
Opening a business account also helps to establish a line of credit, so you’ll have options for taking out loans later if you need them.
2) Hold onto your receipts
Accountants are always talking about keeping records and receipts, but it’s their pet peeve for a reason. Even in today’s electronic age, paper receipts have information you won’t find in bank account transactions or credit card statements, including dates and itemized details.
Remember to also hold onto any records of charity donations and take note of specific items. Next year, you won’t remember whether you gave away a Brooks Brothers suit or Samsonite luggage, but it’ll make a difference for the bottom line on your tax returns.
You should also categorize and file your receipts rather than just stuffing them into a drawer. But you don’t need to keep stacks of old shoeboxes full of decades-old receipts around. Take the extra step of scanning or photographing paper slips and back them up to the cloud for secure record keeping.
Come tax season, you and your deductions will be very grateful you took the time to sort the details out.
3) Use accounting software and machine learning
Most of your personal finances can be managed easily through credit card or bank apps and free tools, but business money management requires a more robust approach. Invest in business accounting software that offers basic bookkeeping functions as well as ways to track expenses and cash flow.
When choosing accounting software, keep in mind how your business might change in the coming years and try to make a smart investment. Something that has both invoicing and payroll capabilities may not be a necessity now, but it could pay off a few years down the road.
Today’s technology also offers cloud-based accounting and automation tools that can increase your productivity. These machine learning applications run seamlessly alongside digital invoicing, payroll, and even customer support.
Cloud-based accounting, however, has a higher price tag, and the sophisticated software may have more under the hood than you need. Carefully weigh solutions or tools you already have access to in free applications against the cost of cloud accounting to determine if making the technological leap is right for your business.
4) Categorize and track your expenses
Setting up expense categories in the software you use can be a serious timesaver come tax season. But before you create categories to sort your costs into, check with the IRS or your tax authority to determine which ones they already use. This way, you won’t get frustrated trying to match your categories with something similar in the tax code.
Dividing your expenses into categories also lets you track and adjust spending. If, for instance, you find yourself splurging too much on advertising, you can curb your impulses and wrangle that Facebook budget into submission before the next quarter.
5) Manage your invoices like a pro
Invoices are how you’ll control payments and ultimately profit for your business. Make sure you’re not getting taken advantage of by following these best practices.
- Itemize, itemize, itemize – Be accurate and as specific as possible.
- Set a due date – Include instructions and date for payment.
- Avoid confusion – Don’t make multiple versions of the same invoice.
- Back it up – Don’t rely on paper invoices. Always retain electronic versions for your records.
You can use downloadable templates or more sophisticated invoicing software. Some payment platforms, like PayPal and Square, also have invoicing features built into their accounts.
6) Project profit and loss
Profit and loss projections may sound like fancy corporate shareholder forecasts, but they can also give you simple snapshots of your business’s financial situation.
Profit and loss statements typically include reports of cash flow, purchases, returns or discounts, and sources of income for your business broken out over a certain period.
Some businesses make profit and loss statements quarterly, while others do them annually. You can choose an interval that you think will work for your business operations and then try to keep it consistent.
Once you can compare your revenue versus your expenses, you can begin to calculate your profit margins and start considering ways to improve your financial forecast and overall profitability.
7) Pay your taxes
If you sell a product, you should collect sales taxes at the point of sale, but for those who provide services, tax liability isn’t as cut and dry. The first step is to learn your tax obligations and your current rate, including any self-employment taxes. Secondly, make sure you pay your taxes on time.
Most businesses are obligated or advised to pay estimated taxes on a quarterly basis. In theory this prevents a nasty surprise come tax season, but often business owners don’t properly calculate what they owe up front.
Check the most recent tax codes online and plan out, calendar, and document your tax payments to avoid the April rush or worse, the dreaded audit.
8) Set aside time for accounting tasks
The mantra that we make time for what’s important to us definitely applies here. Keeping the books of your business in order is an essential task, so give your finances the attention they deserve.
Make lists of accounting tasks and calendar daily, weekly, and monthly timeslots to avoid letting critical actions fall through the cracks. Things like reconciling transactions and receipts should happen daily, while invoicing clients or paying vendors can be done weekly.
Don’t forget to give yourself a little extra breathing room in your schedule every year around tax season. You’ll need it to conduct inventory, get your records in order, and file your paperwork before the clock runs out and you start to rack up penalties.
9) Get professional help when you need it
Last but certainly not least, sometimes outsourcing makes sense. If your business has grown significantly in the last year and you’ve added on tasks like payroll, a more complicated inventory system, or a plethora of suppliers, you may need to hire an accountant.
Even if it’s just on a quarterly basis, hiring a professional can result in the kind of benefits that make it worthwhile, including increased deductions and better financial investments. Tax professionals often remind business owners that good accountants should pay for themselves.
Even though venturing into the accounting world can feel overwhelming, it’s possible to boss up and tackle your money management. Use these tips to jump start your healthy cash flow and ensure your business will continue to grow.
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