Accounting is one of the most important aspects of any business. Many big businesses have a team that handle it and know how to do things accurately and keep the company’s cash flow working well.
Unfortunately, bad accounting is prevalent among small businesses and often holds them back. If you have a small business or start up then you need to move beyond typical shoebox accounting and actually get your accounting system in order.
When you have a system, your cash flow will be improved and there will be less waste so you can be more profitable and more competitive for long term success.
In this article, I will go over several of the best accounting practices for your small business.
Create a system
Putting receipts in one box and stacking invoices in another is not much of a system, but is something many small business owners end up doing.
Instead, use technology to help you set up a system that works, is efficient and will save you time and money in the process.
There are many apps that can connect with your preferred accounting software that streamlines the entire process for you. For instance, you can set up a Quickbooks timesheet that syncs with any number of time tracking apps or invoicing apps that will cut down on the steps required to get everything in the system.
You can have your employees keep track of their hours with the time tracking app and send their timesheet right to Quickbooks to then be paid. Now your payroll is much easier to do.
There are other benefits as well. Such as being able to look at the data and forecast when you need more or less staff. And you can also have your employees track their expenses and submit expense reports that sync with your accounting software.
Track expenses
Every dollar spent on your business needs to be itemized and tracked. You can again use an app to make this easier as many of them allow for receipts to be scanned and entered automatically into the system.
This makes it easier to keep track and when things are synced, you don’t have to waste time repeating steps to have everything itemized.
You should be very diligent in keeping your personal and business expenses as separate as possible. If you are adding your personal expenses, even by accident, then if you get audited you face some serious problems with the IRS.
Have solid internal controls
Unfortunately, small businesses are an easy target for people who want to extort or skim money out of a business. Fraudulent activity is easy to go undetected in a small business where people are busy with running a business and don’t pay much attention to accounting.
Make sure to avoid this by establishing internal controls. You should have different people in charge of different aspects of your accounting system to make sure no one person has their hands on every lever.
For instance, you should have only one person in charge of invoicing and handling the receivables. Then another in charge of payroll and another in charge of authorizing any payments.
This keeps everybody honest and any discrepancies can be seen right away. Even if somebody isn’t trying to actively defraud the business, this is good practice to make sure that cash is not being mis accounted for.
Run internal audits monthly
Data can tell you a lot about what is happening in your business. Every month you should take a look at the data you are getting from your accounting apps and also take a look at any of the ledgers your accountant is doing for you if you have one.
This can let you know the health of your company and ward off any signs of trouble coming. Cash flow is a common problem in small businesses so if you have a firm grip on the accounting system, you can usually make sure that you are not falling behind on things like getting your invoices paid by clients.
Plan your taxes throughout the year
Even if you don’t have to pay your taxes quarterly, it may be a good idea to do so. This avoids a big tax bill at a time when you may not have a lot of cash on hand.
If you decide to not pay quarterly, always have the money that would have been owed in that quarter set aside. And all your tax paperwork should be kept well organized and in one spot so you always understand what your tax burden will be. This can help you plan out your fiscal year and understand when you can invest to grow your business.
