Running a business is no small feat. While it can be rewarding, running a successful business can be time-consuming. Fortunately, there are many ways you can cut down on the time spent on accounting tasks so that you can spend more time on other important aspects of your business. All it takes is planning ahead and staying organized.
Here are the key takeaways from this article on accounting practices for small businesses:
- Separate business and personal expenses by opening a designated business bank account.
- Create a budget and review it regularly to stay financially on track.
- Automate accounting tasks with software to save time and reduce errors.
- Invoice within 48 hours to improve cash flow and prompt payment.
- Stay on top of accounts receivable and follow up on late payments.
- Store and track every receipt to accurately monitor expenses.
- Hire a tax professional to ensure compliance and avoid costly mistakes.
It’s crucial as a small business owner to remain actively involved in the financial management of your business.
Read on to learn the small business accounting tips that will simplify your business operations and leave you with more time to grow your business.
1. Separate business and personal expenses
The first thing you should do as a small business owner, after obtaining your employee identification number, is to open a designated business bank account. Opening a business bank account to keep all business transactions separate from your personal funds is one of the most important small business accounting tips of all.
This one tip will save you so much time and frustration. The last thing you want to do is search through all of your personal accounts to find that one business transaction that you’ve been looking for. This can be extremely frustrating, especially at tax time when you’re trying to pull together business expenses to categorize and use as deductions on your tax return. The same can be said of credit cards. Having to sort through personal transactions, whether through bank statements or credit card statements, can be very time-consuming and very preventable.
Having personal and business expenses separated provides clear visibility of your company, looks more professional, and simplifies your life. It gives you a clearer picture of the cash flow of your business so you can better manage the financial end of your business. The separation of the two also paves the way and clears the path for a more efficient audit should the IRS ever select you.
See also: Who Uses Accounting Information?
2. Create a budget and revisit regularly
Too many small business owners try to ignore this small business accounting advice. The framework for your business is your budget. Without a budget or a well-developed plan, it’s almost impossible to meet any goals you have for your business. A budget will project a benchmark for your business’s revenue and expenses which will help give your company direction and some guidelines for staying on track financially, helping you keep your head above water and then some.
Budgeting is important for several reasons and is one of our most important small business accounting tips. This financial outline helps you make sound and informed business decisions, it tracks your business’s performance and your management of debt so you can see exactly where the business stands and where it is going, it helps your business stay on track financially so that business objectives and financial goals can be achieved, it helps prepare for future emergencies, and budgeting is an effective way to manage cash flow.
By reviewing the budget on a monthly basis, you can address any issues before they get too far out of hand and make any adjustments needed for moving forward toward a healthier path. With this approach, you can nip potential problems in the bud and keep things simple before getting too difficult and complex.
See also: 4 Top Budgeting Methods for Businesses
3. Make accounting easy with automation
Many bookkeeping and accounting tasks are redundant, tedious, and time-consuming. Automating and mainstreaming routine manual processes with the help of accounting software is another way to save time, avoid frustration, and simplify business operations. It also ensures consistency with your accounting practices, results in a more efficient process for business operations and helps reduce human accounting error.
As long as you enter key financial data, accounting software will instantly generate expense reports, payroll, invoices, and certain tax forms. The time this saves is priceless.
4. Always invoice within a 48-hour timeframe
Customers are more likely to pay an invoice quickly if the transaction is still fresh in their minds. After delivering goods or services, always send an invoice within the next 48 hours. This helps speed up the collection process, which ultimately helps maintain a healthy cash flow.
Cash flow is a critical aspect of your business. According to a study by the U.S. Bank, 82% of small businesses fail due to the poor management of cash flow. So, be sure to invoice promptly to ensure a quicker turnaround of payment.
5. Stay on top of accounts receivable
Aging accounts are one of the biggest reasons for cash flow issues. The longer an account sits unpaid, the less likely it is to be paid. The success and performance of your business depends on how efficiently your accounts receivable is being handled. Set aside time each month to reach out to clients who are behind on their payments.
To maintain a consistent flow of cash, it’s essential that your clients are making their payments on time. This is where automation can be very beneficial. By automating your invoicing system, it can help you keep track, maintain, and receive notifications regarding payments that are due and payments that are past due. Automation makes it a much less painful process than it would be if you had to keep up with late payments manually.
By keeping track of your accounts receivable on a monthly basis and maintaining a steady cash flow, it enables the small business owner to better plan ahead.
6. Store and track every receipt
Storing and tracking receipts for your expenses gives you a snapshot of how much you are spending and where that money is going. As a business owner and a taxpayer, it’s critical that you track every expense and have proof to back the expense up. To simplify the receipt process, there are organizations such as Shoeboxed, that scan, organize, and create expense reports from the receipts their customers send to them. This type of service relieves the business owner of a substantial amount of work.
7. Hire a tax professional
Just because you’re a small business owner doesn’t mean that you have to be knowledgeable about every aspect of your business. When it comes to taxes, hire a professional. Tax professionals keep up with the tax laws which are constantly changing from year to year. Preparing business taxes will be easier for them than it will be for you. A tax professional will help you avoid costly mistakes, reduce the risk of an audit, and save you a lot of time from having to do the taxes yourself.
Whether you try one, a combination, or all of these small business accounting tips, hopefully, this free accounting advice will be that wealth of knowledge that will simplify your life and lead to a lifetime of success as a small business owner.
To hone your bookkeeping skills and learn more bookkeeping terms so you can accurately monitor the financial health of your company, check out our mammoth list of bookkeeping resources!
Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.
Shoeboxed is a receipt scanning service with receipt management software that supports multiple methods for receipt capture: send, scan, upload, forward, and more!
You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.
Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.
Join over 1 million businesses scanning & organizing receipts, creating expense reports and more—with Shoeboxed.
Try Shoeboxed today!