Small Business Accounting Tips to Help Get Your Finances In OrderThese 5 habits could save you money and hassle and help you improve your business.
Small business owner by day, accounting expert by night? Probably not. But by following a few basic accounting principles you can manage your business more effectively and keep the profits rolling in.
“Some people might see accounting as tedious work, but it provides insight into the health and viability of your business,” said ReKeithen Miller, certified financial planner, enrolled agent and portfolio manager with Palisades Hudson Financial Group in Scarsdale, New York.
Miller suggests all small business owners follow these five accounting tips.
Practice daily record keeping
Like brushing and flossing, record keeping should be a daily practice.
“Pulling together your books at the end of the year can be a recipe for disaster,” Miller said. “Not only will you have gone an entire year without the ability to evaluate your business activities, but by that time, you also may have forgotten the details about certain transactions.”
These accounting/bookkeeping tasks must be done regularly:
● Check bank balances daily. Know how much cash you have on hand at all times.
● Save all receipts. Keep receipts or copies of digital receipts. File them using an organized system so you can retrieve them when needed.
● Record all transactions. That includes all payments, expenses and sales.
● Reconcile your books regularly. Calculate all profits and losses. “This is critical to ensure transactions are accurately accounted for. It will also ensure that the business is properly recording income and expenses,” Miller said.
● Pay your bills. Make paying vendors and bills a daily priority to avoid late fees and build a good reputation. Sign checks yourself. By handling this task personally you build relationships with people who help your business succeed.
● Balance your business checkbook. Do this on a schedule that allows you to correct any banking errors you find.
● Keep up with invoicing. Send invoices promptly. Choose a time period for following up on unpaid invoices.
● Pay your taxes on time. Estimate accurately and pay all taxes by the deadline.
Use accounting software
Software such as QuickBooks, Sage or Excel can help simplify your accounting tasks. “Each business has its own characteristics that might make one software better suited for its needs than another. However, in my experience, Intuit’s QuickBooks is a robust software offering that can be used for businesses big and small,” Miller said.
Keep good records to facilitate easier credit
Like it or not, potential lenders will judge your business by your financial records. “If your records aren’t in order, it will be harder for banks and investors to understand how your business is performing, and they’ll be more hesitant to provide funding,” Miller said.
Separate your business and personal finances
This one habit can save you if you are ever challenged by the IRS. And don’t skimp on details. “Most business owners fail to document transactions in enough detail to support a challenge by the IRS,” Miller said.
Know when to bring in professional help
If you’re struggling to keep up with the books, consider hiring help. “Some business owners have a hard to turning over the reins of their finances to an outside party to help manage,” Miller said. “However, having proper books and records can make tax and regulatory compliance much easier.”
Hiring a professional may actually save money. “Business owners may find that their tax compliance costs may go down once they get their books in order because the tax preparer will have to spend less time sorting through issues,” Miller said.
Ultimately, routine accounting is an integral part of running a successful business. “You can’t know where you are going if you don’t know where you have been,” Miller said. “Accounting allows you to see the areas of your business that need improvement and to spot areas of waste and abuse.”