December 17, 2019 | Last Updated on: June 27, 2023
If you own your own business, you understand that running one is hard work. Small business owners have to keep track of lots of moving parts as they scale and grow their ventures. From sales to marketing to staffing, it can be tough to keep up with everything. One of the biggest challenges, especially for new business owners, is setting up a solid small business accounting system.
We’ve put together our top eight small business accounting tips to help you get your bookkeeping in order and exploit some accounting best practices to supercharge your performance.
Set up a separate bank account for business use early in your small business’s lifecycle. Having separate accounts will help immensely with keeping track of relevant cash flow and makes it easier for you to get an accurate assessment of your business’s financials without having to pick through personal transactions. Doing this early will save you the hassle of having to reorganize when things are starting to get busy.
Business banking services also include small business loans, business credit cards, and other forms of financing. Having a business bank account makes the process of securing these valuable forms of financing easier.
You can get away with doing your own accounting when your business is small, but as finances become more complex it’s going to take up too much time that could otherwise go towards more productive activities. Hiring an accountant or bookkeeper, even if only for part-time work, can be a huge help. Bookkeepers can be a cost-effective way to deal with the more mundane accounting tasks that demand regular attention. Accounting professionals have the experience and know-how to efficiently and effectively manage your books and will help save time.
Professional help can be especially valuable during tax season. The IRS does not take kindly to filing errors in your tax returns, and working through business tax law can be a pain if you don’t have much experience. Lots of accountants offer tax-time help, and their services cost a lot less than hefty penalties and fines from the government.
Even if you have accounting experience, accounting software tools like QuickBooks and Xero are helpful for pretty much any small business. They can seamlessly do a lot of the heavy lifting for you.
You can link these tools to your business banking services and they’ll pretty accurately keep track of transactions and categorize business expenses and income. These software packages usually also come with invoicing tools that help you to track, send, and pay invoices. Lastly, accounting software can generate basic financial reports to help you get a sense of your business’s finances.
Using your accounting software, it’ll be easier to keep track of and follow-up on outstanding invoices and accounts receivable. One easy way to make sure that invoices and other debts are paid on time is to send them promptly. As soon as you’ve completed a job or received an order, send out the appropriate invoice. If payments aren’t made in a timely manner, don’t be afraid to follow-up!
You’ll save time by not having to deal with a mountain unpaid invoices that you’ve found after looking through your finances if you consistently keep track of payments.
Keeping track of your inventory will arm you with key facts about your business assets that can help you to optimize expenses and keep things running smoothly. You can avoid losing track of or misplacing inventory with diligent and accurate record keeping.
Additionally, keeping track of your equipment and property can help you to identify especially productive or unproductive assets. If an inventory audit shows that certain capital is no longer useful, there are plenty of options for how to get rid of it in a tax-efficient manner. Sometimes, you can abandon unproductive property or assets and write it off as an ordinary loss, saving you both maintenance costs and a portion of your tax bill.
There are plenty of options for inventory management. You can find great Excel templates, buy inventory management software, or take advantage of inventory tools in accounting software systems.
Using your diligent accounting methods, you can take advantage of trends in your spending and expenditures to generate valuable business intelligence. Do you spend more on labor costs during certain quarters? Do you normally make large capital purchases during your slower months? Are there consistent superfluous expenses that could be cut out to boost your bottom line? Diligently analyzing your financial patterns will help you to optimize your business’s performance.
Businesses need to upgrade regularly to keep up with current technologies and stay competitive. Using your inventory records, you can look for equipment that will need to be replaced soon. By analyzing patterns in expenditure throughout the year, you can see if you characteristically spend more during certain periods of the year. You want to plan ahead and set aside cash reserves so that when major capital or other purchases come up, you have the means to deal with them without always have to rely on external financing.
When you make these major capital purchases, you can take advantage of an IRS provision called Section 179. This part of the tax law lets you deduct up to $1 million in business equipment and property purchases during that tax year. This will help your bottom line by allowing you to compensate for large purchases with advantageous tax breaks.
Successful business owners will need to understand how things may change in the future. Financial statements and projections and reports like common size analyses or profit/loss statements can help you to estimate how your business will change in the short and long term. Armed with this information, you can make more informed decisions about where to invest profits, anticipate a need for external financing, and lay out a roadmap for success.
Forecasting is inherently uncertain and can be tricky to get right given all of the relevant factors in modeling future performance, but there are lots of tried and tested methods. Accounting professionals and powerful accounting software will help you leverage forecasting tools to supercharge your business performance.
