Many small business owners have their hands full with operational tasks and neglect to put time into their accounting.
Although accounting can be boring and tedious, doing it properly is crucial for running a successful business. Drawing up financial reports and maintaining balanced books helps you to discover important trends and make accurate forecasts.
Furthermore, accounting mistakes can hamper your bausiness by halting growth and costing you money. That’s why you should do your accounting properly from the beginning.
Here are 9 small business accounting tips to save you time and money.
1. Separate Business Finances From Personal Finances
Many small business owners invest some of their personal funds into their business in order to get it going. Using your personal funds for the first few months is fine but remember to open up a separate business bank account.
Having a separate account for your business makes it a lot easier to track your expenses and business transactions.
Opening up a business bank account and getting a business credit card helps you to distinguish between your business and personal finances. It goes without saying but your business account should only be used for business expenses.
Stay on top of cash payments as well as these can be easy to overlook. Neglecting cash payments can cause problems down the line including incorrect cash flow reports.
2. Keep a Log of Your Expenses
It’s important to keep a detailed log of all your expenses. Not doing so can result in tax, accounting, and cash flow issues.
Not knowing where a charge came from is the result of bad record-keeping. Stay organized by keeping a receipt for every purchase you make through your business.
You should make all business purchases using your business credit card. Keep track of all your receipts by placing them in a specific place on your desk or in your office.
There are a number of situations where you can claim/expense from your business. Such as:
- Travel expenses (i.e traveling out of town for business)
- Office equipment (computers, office supplies, etc)
- Entertainment (Paying for drinks or a meal with a client)
Having a clear log of your expenses is a great help when it comes to doing your taxes.
3. Do a Quarterly Review
Doing a quarterly review helps you to get an overview of your business’s finances.
During your quarterly review take an in-depth look at your accounting records. Look out for trends such as growing or declining revenue/sales, and late-paying customers.
This can help you better plan for the future and decide what you need to invest your capital in going forward.
4. Use Time-Tracking Software
Time-tracking software allows you to monitor your time spent doing specific tasks. Employees can also use it to clock in and out on their smartphones or computers.
Cloud-based time-tracking software can make your life easier by tracking working hours, time off, overtime, and paid leave. There are different time-tracking apps available to suit different industries.
Find an app that integrates with your bookkeeping software to make payroll even easier.
5. Hire a Professional
Hiring the services of a professional accountant can help you when it comes time to do your taxes. By doing your own taxes you may be costing your business a lot of money.
A tax professional can identify deductions that you qualify for and help mitigate errors such as underpaying. This can help you avoid penalties and save your business money going forward.
Furthermore, professionals stay up to date on tax laws (which change all the time!) and can help you plan ahead for tax increases that may affect you in the future. This accounting advisor, for example, gives your business a remote solution when it comes to bookkeeping.
6. Understand the Difference Between Invoices and Receipts
When it comes to small business accounting, knowing the difference between invoices and receipts is essential. Not knowing the difference can mess up your books and cause you headaches down the road.
An invoice is what you send to your customers after they have received your services. It’s a detailed bill that outlines what the customer received and how much money they owe your business.
On the other hand, a receipt serves as proof that a transaction occurred. It is what you send to your customers once a transaction is complete.
7. Stick to Tax Deadlines
Paying your tax on time is essential for making sure your business runs smoothly. Use reminders to make sure you remember when a tax deadline is approaching. You can use an app for this or add a simple reminder on your phone.
Forgetting about a looming tax deadline can cause you quite a bit of stress. Moreover, making a mistake in your taxes because you were rushing is equally bad.
Setting a reminder for important tax deadlines is simple but many small business owners forget this important step.
8. Budget For Tax
All small business owners need to budget for tax. Although you might have a lot of money in your account, it’s not all yours. If you don’t budget for tax as you go along, you might have a heart attack at the end of the year when it’s time to pay your taxes.
9. Create Financial Statements
There are various financial statements that businesses need to prepare. This includes a balance sheet, income statement, and cash flow statement.
These financial statements help you analyze the health of your business. You should prepare each of these on a monthly or quarterly basis.
A balance sheet shows you a snapshot of your business’s assets, liabilities, and equity. The income statement shows your income and expenses over a set period. And your cash flow statement shows you how your cash balances have changed over a defined period of time.
Grow Your Business With These Accounting Tips
Keeping track of your finances is one of the most important aspects of running a successful business.
Although accounting can be tedious and a bit boring, doing it right can help you save money and improve your bottom line.
Keeping track of your expenses, preparing the correct financial statements, and hiring a tax professional are just some of the ways you can streamline your business’s accounting.
If you found these accounting tips helpful, be sure to check out more in the ‘Business’ section of our site.