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Posted by on Jan 7, 2014 in Small Business Tips | 8 comments

3 Accounting Tips for Successful Small Businesses

3 Accounting Tips for Successful Small Businesses

Accounting is a universal pain for most small businesses, though it doesn’t have to be. Just a basic understanding of accounting principles and a little bit of vigilance can go a long way towards making your life easier and improving your bottom line. To get started, try these simple tips:

1) Invoice early, Invoice Often.

In business, cash is king. Unfortunately, many entrepreneurs let day-to-day business operations (what’s urgent) take precedence over invoicing and collections (what’s important). To prevent running into the cash flow problems that plague so many small businesses, remember this simple edict – invoice early, invoice often. The earlier you get an invoice out, the sooner the cash will be in your pocket, and the more room you will have to grow your business.

Keep in mind; an invoice sent is not an invoice collected. Be consistent with your payment terms and make sure that your customers are adhering to them. This may mean spending 15 minutes at the beginning of every week making follow up calls for outstanding invoices, or even reissuing invoices to notoriously late payers. At the end of the day, it’s your money, and it will be time well spent.

If you’re not sure how to begin, take advantage of some great (and very affordable) tools to help you track payments and streamline your invoicing process. Two of our favorites are Harvest and Freshbooks – both of which offer free trials.

2) Make Use of Financial Statements

Chances are, if you’re running a small business, you have at least a basic accounting system in place and are somewhat comfortable with an income statement and a balance sheet. While it may seem daunting at first, applying just a few simple formulas will take you from reading your financial statements to understanding your financial statements.

Average Collection Period: Following up on suggestion number one, this simple ratio tells you how long, on average, it takes to collect on outstanding receivables. If your average collection period is longer than your credit terms, you will need to step up your collection efforts or risk running into serious cash flow problems in the future.

Calculation: (Accounts + Notes Receivable) / (Annual Net Credit Sales/365)

Return on Assets: While we all know it takes money to make money, there is no point in throwing money at a problem if it’s not yielding any positive results. This simple ratio will show you how efficient your company is at turning investments into profit. The higher the ROA, the more effectively you are allocating valuable resources.

Calculation: Net Income/Total Assets

If you are interested in more detailed metrics, get out your most recent financial statements and try this easy Accounting Calculator.

3) Keep Business and Personal Expenses Separate

It may seem like a hassle, but being vigilant about separating personal and business expenses will not only keep you out of trouble with the IRS, it will also save you money in the long run.

First of all, time is money – and taxes take time. Whether you do it yourself or you hire a tax accountant, the task of separating a year’s worth of expenses in April will quickly add up to a significant amount of time. Instead of paying someone to sort through and categorize miscellaneous expenses, make a habit of only using business accounts for business related expenses and personal accounts for personal expenses.

Secondly, deductions are very easy to miss – especially if you file taxes on your own. A client dinner here, new ink cartridges there; sooner or later, the time you spend picking out business transactions from a list of personal expenses will cost you more than the deductions themselves, if you catch them at all. Make it easy on yourself (or your accountant) to spot deductions by keeping all business expenses in one place.

Finally, in the case of corporations or limited liability companies, you can be held personally responsible for corporate debts if there is no clear distinction between your business and personal expenses; this is known as “Piercing the Corporate Veil.” Put simply, if your business is on the hook for any sum of money and the courts cannot find sufficient distance between your personal and professional finances, they may find you personally responsible for the debt and seize your assets to satisfy your creditors. Thankfully, a little bit of effort now will save you from a potentially devastating outcome later.

Implementing these simple strategies now (as we head into tax season) will not only give you greater insight into the financial health of your company, it will save you money and time in the long run. And if you’re in a position to do so, speaking with an accounting professional to come up with a personal accounting plan is always a sound investment.

Bench 2

This post is brought to you by Bench. Bench is the modern bookkeeping service that provides audit-proof financial statements from online accountants at an affordable fixed price. Not in the software business or the accounting business, Bench is in the business of solving accounting problems and letting clients spend more time doing what they love.

Meet Michael Hourigan


Often referred to as "the longest standing intern at Shoeboxed," Michael is a native North Carolinian who graduated from UNC-Chapel Hill. He is an avid golfer, skier and novice bird watcher. When he is not developing marketing campaigns, Michael enjoys binge watching WWII documentaries on Netflix.

  • http://akmcpa.com/ Myles Curren

    The last point is very important as per my perspectives. Yeah really. When you are running a business, you have need to take apart your personal and business expenses with each other. ShoeBoxed has produced really excellent tips for making accounting fruitful for small businesses.

  • http://sassegroup.com/ Pedro P. Macdonald

    If i say that finance is the heart of business than accounting is the spinal . These both things are the core part of any business . Accounting controls all the your in and out transaction regarding to cash , products , services or expenses .

  • http://growthforce.com/ GrowthForce

    One way to keep tabs on your outstanding invoices is to call your customers under the guise of a courtesy call, a few days before the invoice is due. Calling in to see how your customers are doing and gently reminding them that a payment is soon to be due is a nice reminder that you are waiting on payment. You may even be able to get payment right then and there over the phone, reducing the amount of time you need to wait on the payment.

  • Emily at Shoeboxed

    That’s a great tip. Thanks for sharing!

  • prioritytaxgroup

    There are many reasons why people start business.flexibility, better life style,
    earning money and starting a business is the easy part. Creating a successful
    business is more challenging. This article is of great help for us.

  • http://www.cloudstaff.com/accounting Luetta Fox

    These are great accounting tips for small businesses. Thanks for posting an informative article.

  • http://enrichco.com Enrich consulting

    Great tips, Here I have a few suggestions from my experience

    1. Get documentation of all business transactions
    2. Keep record all of your expenses

    Thanks

  • http://www.squareaccountantsnorwich.co.uk squareaccountants

    Thanks, Michael Hourigan for posting such a great information.