Unless an individual is an accountant or really enjoys working with numbers, then accounting is not a favorite task. Nonetheless, adopting certain good habits in the early stages of your small business can assist in averting major ones later on. After completing incorporation of your new small business, it is essential to have processes and systems in place to help in managing any unpleasant surprise.
Systems also help small businesses not to forget important paperwork and even goals. This is because keeping your books properly can significantly help in both making as well as keeping long-term financial goals for your small business. It can also help to smoothen out seasonal fluctuations in cash flow and even enhance profits.
Entrepreneurs running small businesses all over the globe must remain focused on accounting by accurately managing marketing expenses, receivables and debt to avoid the company sinking. This is to say accounting is critical to the success of even a small business.
It is possible to successfully manage a small business through the following 5 accounting tips:
Plan for large expenses
It is important to be honest with yourself about the kind of expenses that will emerge in the next few years. This is because it might entail upgrading facilities and equipment. Similarly, it is critical to acknowledge that your small business will experience its ups and downs financially thus affecting your ability of spending in such times.
Forecasting on major upgrades or even peak in staffing cost will help to instill discipline during favorable months. This means that no money is taken from the company even when things are good. In this, a small business is not affected during slow months.
It might be challenging to track expenses, and this is bad because a small business fails to benefit from tax write-offs. Small business owners can utilize business credit cards in ensuring that each expense is properly tracked.
However, this requires a business to be up-to-date with all its payments. Making notes on your calendar of when you met a client for events, lunches and coffee dates helps in the preparation for audits. It assists in substantiating expenses for the purpose of tax records in case of audit.
The same applies for car mileage that requires recording of the miles covered and the cost implication. A Google map is a modern tool that can greatly help with this.
It is important to keep a good record of the amount of money that is being deposited into the bank account of your business. This is mainly because an array of deposits is made in the business bank account throughout the year. Therefore, it is vital to be able to account for each deposit made or the company risks paying taxes for money that is not income.
Put money aside for taxes
Paying taxes is compulsory and small business owners have sufficient knowledge of when this is done. This is why it is advisable to systematically set aside money that will be used just to pay taxes. If taxes go unpaid, there are high interests and harsh penalties that can be meted.
Putting it aside systematically will ensure that it is available when required. You can do this on a monthly basis or when contracts get paid. This helps in alleviating stress when taxes are due.
Be keen with invoices
Both unpaid bills and late bills can harm the cashflow of a small business. The company can hire someone to effectively track billing. Afterwards, set a process for when bills go unpaid. A practical way of doing this would be to issue a second invoice, levying penalties and making a phone call.
Prepare a plan for when clients are late, say 30 days, 60 days and 90 days late. The main reason being late payments are considered to be interest-free loans that adversely affect cashflow.
Starting any new business venture needs diligence but accounting is one area that is grossly overlooked. With the above 5 insightful tips, accounting should not be the reason why you do not start your small business. Follow most of the accounting tips above they might just be what will keep your small business afloat when times get rough.