Don't let your accounting fall through the cracks.
Regardless of what kind of small business you own or plan to start you need to stay on top of your accounting. Failing to do so can and will result in unnecessary issues and obstacles down the road that could potentially slow down or even halt your business growth.
Managing your accounting means you have to keep track of your business expenses, monitor and evaluate financial reports and collect payments from your customers. As a small business owner you will be faced with countless responsibilities and tasks, so use these 13 tips below to help make your accounting easier (and far less stressful).
1. Track and Sort All Business Expense Receipts
Keeping track of business expense receipts isn’t rocket science. It’s staying consistent that is the problem for most small business owners. It’s much easier to adopt a habit that’s easy rather than one that’s complex.
“Keeping track of paper receipts can be overwhelming, but with technology, we are able to take a picture of each receipt and automatically record it. Once you get in the habit of immediately archiving the receipt you will never miss one,” says David Finn of David Finn, P.C.
Even if you have good intentions, it’s very easy to misplace paper receipts, causing you to fall behind on your bookkeeping. The expense tracking option in a cloud accounting platform allows you to take a picture of your receipt and safely store it in the cloud. The simplicity of the process allows you to stay on track.
2. Keep All Contribution and Donation Receipts
Many contributions and donations are 100 percent deductible, but you need to keep any receipts that are provided in order to claim them on your taxes. “The majority of contributions and donations are done as one-time payments, so it makes it much easier to keep accurate records reflecting these expenses,” suggests Joshua Boles of PM Training Class.
Donations and contributions should be recorded just like all other business expenses, but within their own category. It makes your accountant’s job much easier when you have these separated for them. The easier you make their job, the less likely they are to oversee little details.
3. Create an Accurate Invoicing System
Having a system in place to keep all of your accounting organized is key, and the more organized you are, the less headaches you will have down the line. In today’s technology-driven era, choosing the right business accounting software is very important, and the first step in creating a reliable invoicing process.
“There are a lot of options on the market, so it’s important that you go with an option that not only has all of the features and integrations you currently need, but also has the ability to scale with your growth,” suggests Stephen Young of Blinds Direct.
Young is correct, as transferring everything over to a new platform can be a costly endeavor. While professional looking invoices are important, the features and scaling potential is equally as important to consider.
4. Create a Seamless Payroll System
Unless you are a solopreneur, it’s likely that your small business has employees. If so, then payroll is something that seems simple on the surface, but in reality, is a very complicated component of business ownership.
“You really have two options when it comes to payroll. You can either use payroll software and handle it in-house or hire a payroll company to handle everything from calculating the correct withholdings and taxes to making the direct deposits to your employee’s bank accounts,” offers Robert Hamparyan of Hamparyan Injury Lawyers. For a complete understanding, this payroll guide tells you everything you need to know.
5. Use Software That’s Secure and Compliant
When you use a third-party for your accounting software, you need to be sure they keep your data safe and secure, while remaining 100 percent compliant. “Make sure that the data you are sending to your accounting software is protected with 256-bit SSL encryption and the servers on which the software resides is constantly scanned for vulnerabilities,” advises Adam Boalt, CEO of PassportRenewal.com.
6. Maintain Current P&L Statements
Two of the most important small business metrics are profit and loss. If you are only paying attention to your P&L statement quarterly, then you could possibly be in for a rude awakening.
“Small business experience surges and dips in sales all the time, and while some things like seasonal sales can be prepared for in advance, there are many factors that are out of the business owner’s control. Keeping an up to date P&L statement allows you to quickly get a snapshot of the overall health of your business at any time,” suggests Roxana Zaman, co-founder and COO of Maple.
Your P&L statement should include revenue, cost of goods sold, operating expenses, operating income, gross margin and net profit. These are all numbers you need to know at all times.
7. Always Be Increasing Your Gross Margins
One of the most overlooked aspects of accounting is COGS (cost of goods sold). COGS applies to both physical products and services, so it applies to every small business out there. Not only do you need to be tracking this, but you should always be working to lower your COGS.
“Many small business owners focus on expenses and revenue when doing their accounting, losing track of what can really help to improve their growth and bottom line, which is increased gross margins. Managing the books for a business needs to also focus on increasing profits,” says Marton Sugar, CEO of Pub Crawl Budapest.
As your business grows and you are selling more, whether it’s physical products or re-selling a service like web design, for example, there is always room to negotiate lowers costs. Use your volume as leverage to lower your COGS.
8. Collect Applicable Taxes
This is pretty straight-forward for local businesses that are collecting payment in person, at the point of sale, but it can get tricky for service-based businesses that accept credit cards to collect payments from customers all over the country and world.
“Most platforms now make it easy for small business owners to collect the appropriate sales tax based on the location of the customer. For service-based small businesses, the applicable taxes need to be added to invoices and tracked accordingly,” advises Tim Haider, CEO of Aesthetic Brand Marketing.
Not all invoicing solutions offer seamless taxation, so be sure to take that into consideration. If you manage your accounting on the cloud, adding taxes to an invoice is a simple process. It’s a good idea, however, to consult with your accountant to determine the proper tax to collect for various customers, depending on their location.
9. Triple-Check All Records to Ensure Accuracy
The more frequent you file your records and cross-check them against each other, the less likely you are to have issues arise down the line. “I suggest keeping your files as organized as possible, and review all expenses each month several times before filing them away, even if you are storing it all in the cloud,” explains Ben Larcey, co-founder of StoreKit.
If you just file away all of your expenses and reporting month-after-month and then just hand it off to your accountant issues can pop up. Most small businesses are filing quarterly, so by triple-checking all of your financial records will ensure you are handing off accurate numbers to your accountant every time. A little extra time spent triple-checking can prevent wasted time in the future.
10. Be 100% Sure of Your Tax Obligations
It’s very important that you form your small business correctly, as your taxes will be affected differently depending on how your business is structured. Many entrepreneurs assume that an LLC is the way to go, but depending on their business, it might not always be the most advantageous option in terms of taxes.
“It’s an absolute necessity to consult with an attorney and tax professional when initially setting up your business entity. If you can’t afford to do that, then you can’t afford to start a business,” says David Baddeley, CEO of Finance.co.uk.
Pre-business formation expenses are something you don’t want to skimp on. Think of it as an initial investment on the security and longevity of your business.
11. Operate from a Separate Business Bank Account
You should never mix personal and business bank accounts, even if you are a freelancer or independent contractor. It’s always a good idea to keep every business-related expense separate, and then routinely perform reconciliation, which helps to ensure your bank statements and accounting match up.
“The easiest way to avoid issues is to reconcile your business bank account at the end of each business day. It takes just a few minutes and helps avoid accounting mistakes. The longer you wait, the higher probability of an error surfacing,” suggests Henry Ijams of AvidXchange. Ijams is correct, because the longer you wait the harder it will be to find the conflicting transaction. If done daily, it can take less than five minutes.
12. Set Up an All-in-One Payment Solution
When you limit your payment options, it makes life much easier in terms of accounting. If you have multiple sources of revenue, like cash, checks, PayPal and credit cards, you need to track and reconcile each one. This makes an all-in-one option convenient.
“If you can capture all of your payments through one gateway, it makes accounting much easier. For example, with Stripe, you can accept all major credit and debit cards, and also checks, via ACH payments. When all of your deposits are coming from one source it makes it much easier to stay on top of things,” explains Noam Sadovnik, founder of CLINICUBE.
13. Always Look for Ways to Improve Cash Flow
Part of your accounting process should include optimizing your cash flow. Improving cash flow is important for every business, from large corporation to solopreneur freelancers.
“Little things like sending your invoices in a timely manner or adjusting your payment terms can help your business collect revenue faster, which can greatly benefit the operational side of your business,” advises Zulay Suarez of Scottish Trust Deed.
If you have slow-pay clients, consider giving them a shorter time gap for payments, such as going from 30-days to 15-days. This can help close that previous payment gap and help bring cash into the business faster.
Following these simple, yet effective small business accounting tips are a sure way to help keep your finances organized and on track. Preparation and organization is key when it comes to all aspects of business, and accounting is no different.
Spending the time now to become organized can help you avoid accounting mishaps down the line, which can cost you.