To run a successful business, you need to keep your books up to date. That being said, entrepreneurs often struggle in this area, and risk falling behind when focusing on growing their small business.
But good news! There are some tried-and-tested tips that can help you stay on top of your company’s financial health and efficiently track your business’ transactions. In this article, we’ll go over some actionable tips to help you take control of your accounting responsibilities.
Tip #1: Keep it simple
As a small business owner, you should consider using cash-basis accounting. It’s a simple accounting method that’s used to track income and expenses.
In cash-basis accounting, you record transactions only after they’re completed, and make a record when you get paid or when you make payments. Ideally, transactions should be recorded on the day they occur.
Tip #2: Know which data points to record
Recording everything on a daily basis may seem tedious at first, but keeping a detailed record of your money transfers is necessary for reconciliation purposes.
Here are the main data points you need to record for incoming funds:
- Products or services sold
- Customers (or businesses) to whom you sell your products or services
- Amount received from customers (or businesses)
- Date when the payments were received
And here are the data points you need to record for outgoing funds:
- Taxes paid
- Paychecks and bonuses
- Business operating expenses (e.g. inventory, marketing, and equipment)
- Overhead expenses (e.g. rent, utilities, and legal fees).
There are several reasons why you must keep a detailed record of your company transactions. For starters, it can help you claim small business tax deductions depending on your income or the business structure.
Moreover, some received money may not be part of your revenue. For example, the sales tax you collect isn’t revenue. If you put all your money into a single account, it will be difficult to separate sales tax payments from your actual income.
Tip #3: Follow up on receivables
Sending an invoice to your customers doesn’t necessarily mean you’ll receive the payment on time. Good practice involves issuing invoices as soon as you deliver a product or service as it significantly increases the chances of timely payment.
Remember to follow up with vendors who owe you money as the payment deadline approaches. You can also offer early payment discounts to motivate your clients to pay on time!
Additionally, accepting online payments and using cloud-based accounting software can help you streamline your accounting tasks. With Ablii, you can simplify your business transactions. The platform helps you automate your accounting, track receivables, and get your money faster.
Tip #4: Create financial projections
Financial projections and reporting may take time, but they can help you estimate where your business will be in the next few years. This information puts you in a good position to make sound decisions regarding investments.
Financial forecasting can be complicated for some people as it involves figuring out the different ways expenses can change due to forces beyond your control – such as interest rates and inflation – as well as decisions made by your customers. The same goes for revenue since you need to take various factors into account, such as an increase in prices and how many new customers you acquire each year.
Consider starting with a profit and loss statement, which tells you how profitable your company is over a period of time. By analyzing it regularly, you will be able to get insight into which business areas you’re making money and which ones you’re losing money in.
Accounting for small business owners may seem complicated at first, however, it becomes a whole lot easier if you implement some simple tips to better understand your business’ financial health.
Do you regularly record your business transactions? Share your best money management tips in the comments section below.