By Sharad Acharya
Business is all about numbers. Right from the number of sales to finances and expenditures, and overheads – all are significant for the success of a business. Of course, these aren’t the only necessities either, as inventory costs, return and profit also play an important role while determining a firm’s financial position.
Unfortunately, most of the small business owners are missing the bigger picture as they are more focused on usual routine tasks. While this can be important to ensure that a business operates to the best of its capability, taking a step back from time to time is also essential.
Big decisions which can influence a company’s operations need to be made once you have all the available statistics. However, such steps can lead to a great deal of financial stress on a company. Therefore, knowing as much as possible can have a huge impact on your small business’ success. With these five accounting tips, you would have a better understanding of your business.
1. Plan for Major Expenses
Be prepared for the expenses which may come up in the coming years. Replacement of equipment, peaks in staffing cost or system upgrades shouldn’t come as a surprise.
It’s essential to recognize the seasonal fluctuations, and how they can affect your ability to spend at the time. Allocating funds over time would allow a consistent distribution of cash flow. For example, keeping aside 10% of your funds for the next five years would have a less effect than 50% in a single year. With this, you’re less likely to miss any good business opportunity or have to rush for a loan when business expenses become unavoidable.
2. Automate Whatever You Can
Is your small business still relying on manual processes for accounts reconciliation? If yes, then you’re a part of a shrinking group.
Of the U.S. executives surveyed for Robert Half’s 2018 report, 22 percent said they use automation systems developed internally, and 23 percent are using third-party software for accounts reconciliation. As firms update their accounting operations, they become more efficient than ever.
Technology, today, has transformed the accounting industry, and it’s easier than any previous era. The small business owners that keep with that change – who can further add value to the automated environment – would become more indispensable.
Cloud-based accounting goes one better by allowing you access to key financial data from anywhere and anytime. It also ensures that your data is backed up to the cloud – no more worries about a stolen laptop or crashed hard drive destroying your books.
3. Maintain a Complete Record of Accounting Documents
Have you ever sat down and seen a pile of documents everywhere, unorganized papers, and felt helpless to keep track of the accounting process?
Running a small business involves a lot of documentation. In accordance with the legal record obligations, companies need to keep their accounting records. These records should be adequate to explain all the business transactions.
In most cases, you should be able to manage the basic records without the need of an accountant such as maintenance of cash records, regular recording of business transactions, and maintenance of general ledger. However, you may need an accountant with less routine tasks such as preparing a budget, financial statements, recurrent adjusting entries, and income tax returns.
Maintaining accurate records consistently is not only crucial to your business’ success but is also a legal requirement. It would also help you take better control of your company’s financial growth and success.
4. Create Profit and Loss Statements
Even if you don’t need funds for your small business from a bank or an investor, you would need some financial statements to help you make important decisions for the business. Profit and Loss statements (called a “P&L”) can provide you an outline of the financial health of your company. It shows the expenses, costs, and revenues incurred by your business, over a specific period of time – month, quarter or year.
Managing profits and losses of the company also mean making essential changes to your finances. Creating and comparing P&L statements allows you to check issues in your financial health. Identifying such issues lets you come up with a new business growth strategy.
5. Keep an Eye on Your Invoices
Is an invoice just a reminder for your client to make the payment? No, it’s much more!
Invoicing is an important part of running a small business, as they catalogue and keep track of services. And therefore, it’s critical that you enter correct and complete information.
Accurate invoicing ensures that if clients come up with queries in the future, you’re prepared with a record of agreed-upon terms under which you are working. The continuous influx of ingoing and outgoing invoices should be kept organized, both for the sake of accounting books and business growth.
Sharad Acharya is a writer at Ace Cloud Hosting – a leading hosting provider for tax software, with several years of experience in the cloud industry. He loves to research on various technologies and has a firm grasp on topics like Accounting, ERP, VDI and HIPAA.