By Scott Heimgartner
To keep on top of sales, expenses and income, here are seven top small business accounting tips that enable companies to meet tax reporting requirements while keeping an eye on business performance.
In a fast-paced small business environment, maintaining an accounting system may not be a top priority. Yet, financial recordkeeping is vital for results-oriented companies. To keep on top of sales, expenses and income, here are seven top small business accounting tips that enable companies to meet tax reporting requirements while keeping an eye on business performance.
1. Get Organized
Organization of financial data is the first step in the process o
r recording and measuring results. Create a filing system, either electronically or with paper folders. Catalog information in a way that makes sense; for example, by customer, product, or by time period. The point is to store backup and support items where they can easily be found when the time comes to compile financial reports.
2. Track Cash, Not Just Sales
Sales growth is a key positive indicator of small business performance and a sign that the company is moving in the right direction. Yet, sales are not the only factor in overall profitability and liquidity. The ability to collect on sales and bring in cash is also essential. A basic cash flow statement can illustrate a company’s liquidity and the amount of cash generated for reinvestment, important indicators of long-term success.
3. Understand Reporting Requirements
All small businesses are required to file tax returns each year. Understanding how financial statements are prepared and structuring your accounting system to meet reporting requirements helps prevent last-minute scrambles to meet tax filing deadlines. If credit funding is needed, a profit and loss statement may also be requested by a commercial loan officer. The ability to produce financial reports on a timely basis when requested adds to a company’s professional image and communicates the positive financial attributes of a business to potential investors.
4. Know Your Operations
A business may be flush with cash, yet if current funding is mainly sourced from outside investors, poor financial performance may be overlooked. Tracking sales and expenses at detailed levels for the purpose of analyzing operations helps managers understand how income is generated. Measuring the amount of operation spending needed to achieve sales growth is another critical performance indicator. Expense line item information should be used to prepare budgets. Business owners need to know which products are performing best and which customers are the most reliable and profitable before allocating future investments and setting company direction.
5. Keep it Balanced
Tying financial records (even if the only record is a company check register) to an external source like a bank statement is the best way to detect bookkeeping errors. Monthly account reconciliations detect problems quickly and prevent small mistakes from snowballing. All bank accounts should be balanced each month and errors should be researched and corrected. If a company uses a dual entry accounting system, the general ledger serves as another method of ensuring the books are balanced and no entries have been missed.
6. Know What’s Due When
Paying bills on time is another way to demonstrate professionalism and forge trusted business relationships with suppliers. Create a payment calendar, budget appropriately, and stick to your pre-determined payment schedules. To maximize savings, avoid paying late fees, interest, and fines whenever possible. Take advantage of vendor discounts by paying bills early or on time.
7. Consider Online Accounting Software
For a user-friendly yet technologically advanced accounting system, try online accounting software. Often small business accounting tips and advice are included in the software’s help screens and user guides to further increase recordkeeping efficiency. Rather than incurring the expense of building a customized accounting platform in-house, cloud-based systems provide bank
Scott Heimgartner is senior product manager for Paychex Accounting Online, a cloud-based accounting and business reporting service. Heimgartner is focused on delivering an exceptional user experience and developing the tools that small businesses need to manage, operate, and grow their business. A CPA himself, he believes that the core of every successful small business is a good understanding of accounting principles combined with the employment of technology to manage the daily operations of the business. Scott resides with his family in the Chicago area. Follow them @Paychex.